## 1. Towards an Integrated Public Finance Reform Strategy (Content unit: 1codea2021001) ## Source details **Canonical URL:** [1. Towards an Integrated Public Finance Reform Strategy (Content unit: 1codea2021001)](https://www.imf.org/-/media/files/publications/cr/2021/english/1codea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1codea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1codea2021001.pdf.json) --- ### Background, mission and methodology - Mission conducted in Kinshasa, Democratic Republic of the Congo (DRC) from December 9 to 20, 2019. - Mission objectives: - Discuss with the authorities a diagnostic of governance issues in the DRC. - Articulate measures to help improve governance and the fight against corruption. - Mission led by Mr. A. Antonio Hyman-Bouchereau (LEG). Team: Mr. Pasquale Di Benedetta (LEG); Mr. David McDonnell (LEG); Ms. Alice French (LEG); Mr. Patrick Petit (FAD); Mr. Anthony Ramarozatovo (FAD); Mr. Benoit Taiclet (FAD Consultant). - Over 60 meetings with government, private sector and civil society; coordinated with the Technical Committee for Monitoring and Evaluation of Reforms of the Ministry of Finance. - Aide-Memoire follows IMF methodology, particularly the IMF 2018 framework for enhanced engagement on governance. ### Cross-cutting governance issues - Four cross-cutting issues identified: - Institutional complexity. - Normative complexity. - Data integrity and transparency. - Checks and balances. - Effects: - Overlapping or poorly defined mandates (examples: management of public enterprises through different ministries; management of revenues through different tax administration agencies). - Unclear legislative amendments and absence of a unified General Tax Code proper. - Low transparency and poor audit practices undermining financial data quality. - Limited ability to implement effective checks and balances between agencies. ### Revenue system and administration — findings - Major points: - VAT, income taxes, excise duties, customs duties account for about 80 percent / 79 percent of central government revenues (texts use both figures in different sections). - In 2018, tax and nontax revenue amounted to only 10 percent of GDP. - DGRAD accounts for 21 percent of central revenue; half of DGRAD revenue from a few royalties on natural resources. - Up to 137 possible tax/charge types by 26 provinces; 38, 34 and 38 possible types by cities, communes and chieftaincies respectively. - 11 special funds and roughly 800 entities with annexed budgets whose revenue practices are not indexed or codified. - In December 2019, the TGA was the depository of only 28 percent of public liquidity. - Revenue projections systematically overestimated (budgeted revenue rose from 12.5 percent of GDP in 2019 to 21.1 percent in 2020 while recent revenue numbers closer to 10 percent). - Operational vulnerabilities: - DGI, DGDA and DGRAD rely on largely manual processes and weak disciplinary frameworks. - Lack of a taxpayers’ charter; arbitrary application of powers; high compliance costs due to direct interactions with agents. - Customs: some use of ASYCUDA World but redundancies and manual steps remain; DGDA collected CDF 1,477 billion for the general budget and CDF 521 billion as related revenue in 2018. - Import legal framework creates de facto personal daily import exemption of $2,500 (import license mandatory only above $2,500); DGDA counted just 0.22 percent of imports (in value) as allowances in 2017 and 2018. - Human resources and incentives: - Subjective HR management, weak sanctions, culture of impunity. - Examples: 30 percent of employees in the Large Enterprises Directorate have been in post since 2002; that directorate produces 85 percent of the DGI’s revenue. - Bonus structures create perverse incentives (DGI revenue collection bonus: 55 percent of proceeds from issuance of bonuses amounting to 5 percent of revenue collected; DGDA lists at least 16 types of bonuses with monetary ranges noted). ### Tax expenditures — key statistics (Table — Tax Expenditures in the DRC (2017)) - Ordinary rules: Lost revenue (MM of CDF) 29.8; Share of the total (%) 2.9; Share of central tax and non-tax revenues (%) 0.7 - Tax code: Lost revenue (MM of CDF) 9.1; Share of the total (%) 0.9; Share of central tax and non-tax revenues (%) 0.2 - Customs tariffs: Lost revenue (MM of CDF) 20.7; Share of the total (%) 2.0; Share of central tax and non-tax revenues (%) 0.5 - Special derogations: Lost revenue (MM of CDF) 987.8; Share of the total (%) 97.1; Share of central tax and non-tax revenues (%) 21.7 - Investment code: Lost revenue (MM of CDF) 61.6; Share of the total (%) 6.1; Share of central tax and non-tax revenues (%) 1.4 - Mining code: Lost revenue (MM of CDF) 480.1; Share of the total (%) 47.2; Share of central tax and non-tax revenues (%) 10.5 - Public contracts with external financing: Lost revenue (MM of CDF) 158.9; Share of the total (%) 15.6; Share of central tax and non-tax revenues (%) 3.5 - NGOs and NPOs: Lost revenue (MM of CDF) 69.7; Share of the total (%) 6.8; Share of central tax and non-tax revenues (%) 1.5 - Strategic partnerships: Lost revenue (MM of CDF) 40.1; Share of the total (%) 3.9; Share of central tax and non-tax revenues (%) 0.9 - Agricultural exemptions: Lost revenue (MM of CDF) 1.6; Share of the total (%) 0.2; Share of central tax and non-tax revenues (%) 0.0 - Cooperation projects: Lost revenue (MM of CDF) 1.2; Share of the total (%) 0.1; Share of central tax and non-tax revenues (%) 0.0 - DGRAD: Lost revenue (MM of CDF) 174.6; Share of the total (%) 17.2; Share of central tax and non-tax revenues (%) 3.8 - Total: Lost revenue (MM of CDF) 1017.5; Share of the total (%) 100.0; Share of central tax and non-tax revenues (%) 22.3 ### Revenue administration — recommended reforms and timelines (selected) - Restore taxpayers’ trust, digitize procedures, improve HR management and strengthen accountability. - Transparency and communication (Immediate and permanent or specified frequencies): - Publish all fiscal, customs or non-fiscal texts; anonymized responses to user requests; procedures manual; job descriptions; delegations of powers; vision and strategic plan (Annual); statistics of complaints/appeals (Quarterly); taxpayer lists and tax clearance (Monthly); statistics of disciplinary measures (Monthly). - Urgent measures to improve complaints/appeals (priorities and impacts): - Eliminate the “surety” (Priority: High). - Shorten/harmonize investigation timeframes from 6 to 1 month (Priority: High). - Tacit acceptance of complaints if no reply by deadline (Priority: High). - Independent pre-legal appeals body (Priority: Medium). - Reduce/simplify fines and penalties (Priority: High). - Specific digitalization/payment/reporting deadlines (selection from Table 5): - DGI: Create online tax accounts for large businesses. Deadline: June 2020 - DGI: Remote reporting/payment for large businesses. Deadline: October 2020 - DGI: Online complaints and VAT refund procedures. Deadline: October 2020 - DGI: Payment of small taxes via mobile terminals. Deadline: December 2020 - DGI: Remote reporting/payment for medium-sized enterprises. Deadline: April 2021 - DGDA: Enforce Decree No. 036 of February 20, 2008 and Decree No 13/052 of November 11, 2013. Deadline: Immediate 2020 - DGDA: Interconnect ASYCUDA World with the GUICE application. Deadline: Immediate 2020 - DGRAD: Remote reporting/payment for large mining businesses. Deadline: November 2020 - DGRAD: Extend remote reporting/payment to other businesses. Deadline: June 2021 - DGI/DGRAD: Virtual one-stop shop for reporting/payment. Deadline: December 2021 ### Public Financial Management (Treasury, procurement, budget execution, reporting) - Treasury and cash management: - Scope of the General Treasury account (TGA) remains narrow; many accounts outside TSA/TGA (special accounts, assigned taxes, annexed budgets). - In December 2019, two thirds of State funds are managed outside the general Treasury account in commercial banks under de facto managers. - Banking mechanism and ban on cash payments function but coverage limited. - Budget execution and procurement vulnerabilities: - In 2018 only 14 percent of public contracts were awarded by competitive tender. - Expenditures under standard procedures account for only about one percent of non-compensation expenditures; emergency procedures represent 0.7 percent of GDP in 2018 and are a macro critical risk. - Absence of a properly structured network of treasurers and accountants; general accounts still single-entry accounting; budget execution reports cover only receipts and expenditures; no consolidation across territory/public sector. - Procurement and PPPs: - Procurement Code adopted in 2010; SIGMAP procurement management system acquisition initiated but central-level completeness contrasts with provincial incompleteness. - Law No.18/016 of July 9, 2018 on PPPs; regulatory and operational implementation still in progress. - Stock of fixed capital in PPPs amounted to 4.6 percent of GDP in 2015. - Recommended PFM reforms and timing (selected): - Extend TGA coverage to all central government operations. Due: Over 2020-2023; All parafiscal taxes in the TGA by 2021; All local revenue and public corporation cash in the TGA by 2023. - Sequester BCC sub-accounts reserved for operations (VAT refunds, provisions for risks). Due: Sequester accounts ready by end 2021. - Accounting reform: network of public treasurer-accountants, double-entry accounting. Due: Immediately and continuous. - Restore normal expenditure procedures and legal framework for Treasury (legal framework ready in 2020; capacity reinforcement over 2020-2023). ### Extractive sector and SOEs — findings and reforms - Extractive sector: - Mining accounts for 95.3 percent of exports; hydrocarbons 3.7 percent; forest products 0.3 percent. - 2018 Mining Code amendments aimed to tighten transparency but introduce ambiguities (e.g., repudiation of stability clauses, discretionary designation of strategic substances, ill-defined tax on excess profits art. 251 bis). - Revenue projections from mining are unreliable; disclosure and audit practices weak. - Requirement to disclose beneficial ownership exists in the code but implementing decree needed to define materiality, PEPs, responsible agency. - SOEs: - Book value of SOE portfolio end-2016 was $16.5 billion (~50 percent of GDP). - SOE losses: around $3 billion in 2014; close to $4.4 billion in 2017. - Seven strategic commercial SOEs: average aggregate loss of $411 million between 2011 and 2017 (Gécamines and SNCC worst performers). - Poor disclosure: Gécamines publishes only auditor opinion despite qualified opinions three years running. - Institutional oversight: - Ministry of Portfolio manages state holdings; CSP and COPIREP created for oversight/advice but implementation and analytical filtering of political decisions weak. - Oversight boundaries exclude indirect participations and contracts SOEs enter with partners (JVs), creating governance gaps. - Recommended SOE/extractive reforms (selected with dates): - Create a beneficial ownership registry. Due: Immediately and over 2020-2021. - Publication of financial statements of SOEs. Due: Immediately. - Comprehensive publication of mining, oil, and gas contracts. Due: Immediately and ongoing. - Assess rationale for state ownership and introduce accountability triggers for SOE performance contracts. Due: Immediately and over 2020-2021. - Conseil Supérieur du Portefeuille (CSP) to provide timely annual aggregate reporting for the SOE portfolio. Due: End of the next financial year. - Legally expand perimeter of Ministry of Portfolio oversight to include indirect state participations. Due: End-2021. ### Financial sector oversight and Central Bank of Congo (BCC) - BCC legal and governance framework: - Law no. 18/027 of December 13, 2018 governs organization; amendments strengthened de-jure autonomy and transparency but operationalization outstanding. - BCC has vacancies on Board; two current non-executive directors contravene incompatibility criteria. - Decision-making concentrated with the Governor; Management Committee not yet established. - Autonomy and fiscal dominance: - Government debt of US$1.8 billion at end-December 2018 represents about 60 percent of total assets. - Practices include unremunerated advances and government securities remunerated below market rates—breaches of monetary financing prohibitions. - Transparency, accounting and audits: - Deloitte Congo external auditor since 2016; 2018 audit opinion unmodified but highlights breaches of monetary financing prohibitions. - BCC has not adopted IFRS; transition to IFRS recommended for FY 2021 (i.e., IFRS implemented on January 1, 2021). - Internal audit falls short of international standards. - Operational risks: - Around 38 percent of foreign reserves at end-2018 are deposited with domestic commercial banks that are unrated or rated below investment grade. - Lending operations do not distinguish standard monetary policy from Emergency Liquidity Assistance (ELA). - Selected BCC recommendations and dates: - Fully constitute BCC Board and address non-compliant appointments. Due: June 2020. - MoU to regularize outstanding credit to government and remunerate central bank on advances. Due: June 2020. - Finalize FY 2019 audit and publish audited financial statements. Due: June 2020. - Adopt IFRS and implement for FY 2021. Due: January 1, 2021 (IFRS implemented on January 1, 2021). - Divest domestic investments in FX reserves portfolio (medium-term plan). Due: October 2020. - Adopt Board-approved framework distinguishing ELA and other lender-of-last-resort operations. Due: December 2020. - Financial supervision: - Process to adopt risk-based supervision begun; AFRITAC Central support provided. - Regulatory updates on corporate governance, related-party transactions, internal controls and risk management passed; implementation capacity remains a challenge. - Instruction N18 of May 2019 tightens approval conditions for credit institutions, outsourcing, and related requirements. ### Judiciary, rule of law, property and business environment - Judiciary and rule of law findings: - Widespread resource, capacity and independence issues; low public confidence. - Transparency International’s ‘Global Corruption Barometer – Africa 2019’: nearly 75% view "most or all people" in the judiciary as corrupt. - 2019 ‘Worldwide Governance Indicators’ — DRC score of 2.88 out of 100 on ‘Rule of Law’. - 2018 Mo Ibrahim Index — 'Safety & Rule of Law' score of 19.4 out of 100. - Court decisions rarely published; recommendation: publish all court decisions promptly in a single centralized location. - Contract enforcement and property rights: - World Bank ‘Doing Business 2020’: DRC ranked 178th out of 190 economies for contract enforcement; enforcement cost 80.6% of contract value; average time 610 days. - Property registration: DRC ranked 159th out of 190; eight procedures; average 38 days; cost over 10% of property value; records only on paper. - Business environment and market regulation: - Complex discretionary regulation, excessive levies and controls; Doing Business indicators for trading across borders and paying taxes show large gaps with regional averages. - Guichet unique established but GUICE not interconnected with ASYCUDA World (Sydonia World); GUICE reduced document prep time by 122 hours for exports and 42 hours for imports; border compliance time reduced from 219 hours for exports and 252 hours for imports. - Informal sector large: 2012 estimate informal sector represented "88.6 percent of total economy"; formal sector enterprises decreased to "just 0.3 percent by 2019." ### Anti-corruption, AML/CFT and institutional frameworks - Anti-corruption framework: - Disjointed and lacking key elements; OSCEP raises awareness but has no investigative/enforcement powers. - DRC acceded to UNCAC on September 23, 2010 but has not initiated the first cycle of the UNCAC review mechanism. - Constitutionary provisions (Article 107/151 as cited) and immunity for parliamentarians hinder investigations; recommendation to abolish presumed immunity and enable prosecutor investigations. - Asset declaration regime (Article 99) not implemented in practice. - AML/CFT deficiencies: - AML/CFT law: "Loi N° 04/016 du 19 Juillet Portant Lutte Contre le Blanchiment Des Capitaux et le Financement du Terrorisme" (July 2004) — framework not compliant with FATF standards. - Corruption is a main predicate crime for money laundering; proceeds often laundered domestically (real estate) and abroad. - CENAREF received few STRs with only one resulting in prosecution; DNFBPs and some financial sectors operate outside AML/CFT requirements. - GABAC membership; MER scheduled for adoption at the October 2020 GABAC Plenary (onsite assessment August 2018). - AML/CFT recommended measures (selected with dates): - Amend AML/CFT Law and related regulations to ensure FATF compliance. Due: Immediately. - Implement asset declaration framework and strengthen PEP measures. Due: 2021-2022. - Strengthen CRF with resources and independence. Due: 2021-2022. - Strengthen supervision of financial institutions via risk-based supervision. Due: 2021-2022. - Issue AML/CFT guidance and encourage banks to file STRs (including extractive sector typologies). Due: Immediately. - Implement mechanism to obtain adequate, accurate and current beneficial ownership information. Due: 2021-2022. - Define a penal policy oriented at suppressing ML and predicate crimes supported by financial investigations. Due: During 2021-2022. - Develop procedural manual for international cooperation and create a dedicated unit in the Public Prosecutor’s office to manage MLA requests. Due: During 2021-2023. - Sign bilateral agreements to formalize international cooperation with priority countries. Due: During 2021-2023. ### Key high-level recommendations (priorities and due dates as provided — selection) - Public finance: - Codify all central levies in a General Tax Code, including all non-tax revenue. Due: Immediately. - Rationalize non-tax revenues to minimum by end of 2023. Due: Immediately; implementation over 2020-2023. - Reform derogatory regimes (tax exemptions). Due: End-2021. - Conduct review of special accounts; eliminate duplicates and entrust remaining collections to tax agencies by end of 2020. Due: Immediately; aim to propose more restrictive framework by end of 2023. - Conduct census and unification of payroll and public service files. Due: Immediately. - Revenue collection and administration: - Implement short-term measures (mission tables). Due: Immediately. - Develop digitalization strategy and modernize HR and internal controls. Due: End-2021. - Public financial management: - Extend TGA to all central government operations. Due: Over 2020-2023; All parafiscal taxes in TGA by 2021; All local revenue and public corporation cash in TGA by 2023. - Professionalize treasury and accounting functions; adopt double-entry accounting. Due: Immediately and continuous. - Restore normal expenditure procedures; legal framework ready in 2020; capacity reinforcement over 2020-2023. - Extractive sector and SOEs: - Create beneficial ownership registry. Due: Immediately and over 2020-2021. - Publish mining, oil and gas contracts and SOE financial statements. Due: Immediately. - Assess rationale for state ownership and raise corporate governance standards for strategic SOEs. Due: Immediately and over 2020-2021; identify and raise bar by End-2021. - Rule of Law and property: - Establish publicly accessible central repository of updated laws and regulations. Due: Immediately. - Create digital property register; commence immediately and build over next 12 to 18 months. - Publish all court decisions. Due: Immediately. - Anti-corruption and AML/CFT: - Engage in UNCAC Review Cycle I. Due: Commence immediately with Mauritius and Vietnam as reviewing countries. - Establish and operationalize an independent anti-corruption agency. Due: Mid-2021. - Abolish immunity for Parliamentarians to enable Public Prosecutor action. Due: Immediately. - Revise AML/CFT legal framework to meet FATF standards and strengthen beneficial ownership transparency. Due: Immediately; implementation through 2021-2023 for related measures. - Financial sector oversight: - Implement upgraded regulations on bank governance, internal controls and risk management. Due: Immediately. - Continue adoption of risk-based supervisory processes. Due: Immediately. - Strengthen corrective action disclosure and powers. Due: Immediately. ### Fiscal governance highlights and implications - Fiscal context: - In 2018, tax and nontax revenue amounted to only 10 percent of GDP. - Barely one-twentieth of this amount in 2018 was in domestically financed public investment. - Implications: - Low revenue and spending inefficiency are closely linked. - Corruption is a major handicap for revenue performance in Sub-Saharan Africa and particularly in the DRC. - Taxpayer compliance weakened by perception that tax system provides no benefit. - Improving quality of public spending can promote tax compliance by delivering visible benefits. *Source: EXECUTIVE SUMMARY and selected sections (1codea2021001).* ### 1. Towards an Integrated Public Finance Reform Strategy ________________________________________ 37 ### 1. Towards an Integrated Public Finance Reform Strategy ### Background and mission - Mission conducted in Kinshasa, Democratic Republic of the Congo (DRC) from December 9 to 20, 2019. - Mission objectives: - Discuss with the authorities a diagnostic of governance issues in the DRC. - Articulate measures to help improve governance and the fight against corruption. - Mission was conducted at the request of His Excellency the President of the Republic and Head of State. - The mission’s Aide-Memoire follows the methodology set out in key IMF policy documents, particularly the IMF 2018 framework for enhanced engagement on governance. ### Mission leadership and team - Mission led by Mr. A. Antonio Hyman-Bouchereau (LEG). - Team members: - Mr. Pasquale Di Benedetta (LEG) - Mr. David McDonnell (LEG) - Ms. Alice French (LEG) - Mr. Patrick Petit (FAD) - Mr. Anthony Ramarozatovo (FAD) - Mr. Benoit Taiclet (FAD Consultant) ### High-level engagements - The mission met with: - H.E. Célestin TUNDA YA KASENDE, Vice-Prime Minister and Minister of Justice - H.E. Sele YALAGHULI, Minister of Finance - Jules BONDOMBE ASSANGO, Vice Governor of the Central Bank of Congo - Several senior officials, board members and staff of government agencies, state-owned enterprises (SOEs), private sector actors, civil society organizations (CSOs), international organizations, and diplomatic missions. - Over 60 meetings were held with the government, the private sector and civil society. ### Coordination and cooperation - The mission worked with the Technical Committee for Monitoring and Evaluation of Reforms of the Ministry of Finance, led by M. Félicien Mulenda Kahenga, National Coordinator. - The Technical Committee provided close cooperation and helpful information and coordinated and facilitated the mission schedule. ### Methodology - Consistent with its mandate, the IMF engages members on governance issues when governance and corruption significantly affect macroeconomic performance and program objectives. - The mission’s Aide-Memoire follows the methodology set out in IMF policy documents, particularly the IMF 2018 framework for enhanced engagement on governance. *PREFACE, DEMOCRATIC REPUBLIC OF THE CONGO — INTERNATIONAL MONETARY FUND* ### EXECUTIVE SUMMARY ### 1codea2021001 - EXECUTIVE SUMMARY ### Cross-cutting issues - Four cross-cutting issues affect the effectiveness of the economic governance framework in the DRC: institutional complexity, normative complexity, data integrity and transparency, and checks and balances. - Institutional complexity: mandates of different agencies overlap or are poorly defined, producing a blurring of roles and responsibilities (examples: management of public enterprises through different ministries; management of revenues through different tax administration agencies). - Normative complexity: unclear legislative amendments and absence of unified texts (no General Tax Code proper; current corpus includes only the main taxes of the State). - Data integrity and transparency: low levels of transparency associated with low audit practices, impacting the quality of financial data and disclosure practices. - Checks and balances: limited ability to implement effective checks and balances between agencies. ### Revenue administration and tax system vulnerabilities - Significant vulnerabilities in revenue administration agencies (DGI, DGDA and DGRAD) due to largely manual processes and weak disciplinary processes for unethical acts. - Legal framework shortcomings: - Clarity and reliability of laws, rules and procedures are not always guaranteed. - Legal framework does not always provide an appropriate balance between taxpayer rights and the powers of the three administrations, leading to arbitrary decisions. - Operational issues: - Despite improvements at customs, officials misunderstand electronic procedures; processes remain largely manual, fostering direct interactions between agents and users and increasing taxpayers' compliance costs. - Human resource management restricts maneuverability for key managers and prevents imposition of dissuasive sanctions on unethical agents. - Nonexistence of a charter of rights and obligations for taxpayers exposes users to discretionary powers of revenue administration agents. - System complexity: - Major state taxes (VAT, income tax, excise duties, customs duties) account for about 80 percent of the central government's revenues and are rather standard. - Non-tax revenues collected by sectoral ministries are numerous and fragmented; a third revenue agency (DGRAD) is devoted to them. - Levies charged by nine special accounts, by hundreds of organizations in budgetary annexes, by provinces, and by decentralized territorial entities create a fragmented revenue map; several collections are not properly formalized. - Mapping of actual revenue is not yet under control. ### Public Financial Management (Treasury, procurement, budget execution, reporting) - Scope of the General Treasury account (TGA) remains narrow; many accounts are outside the TSA without proper oversight. - The ban on cash payments seems effective; fund transfers between commercial banks and the central bank are monitored periodically. - The scope of the TGA is very narrow; the banking mechanism does not apply to considerable public resources (special accounts, assigned taxes, revenues of annexed budgets). - Numerous transfers from the TGA to depositaries responsible for executing expenses. In December 2019, two thirds of State funds are managed outside the general Treasury account, in accounts opened in commercial banks under de facto managers, some not legally authorized to handle public funds. - Execution of expenditure—weaknesses in critical steps: - Public procurement: legal framework and institutions overseeing procurement are marginally effective. In 2018, only 14 percent of public contracts were awarded by competitive tender. Fragmentation of State functions contributes to poor public investment performance. - Budget execution: weak and ineffective controls on remunerations and use of exceptional emergency spending procedures; such procedures are rarely documented. - Cash disbursements: absence of a properly structured network of treasurers and accountants. Significant bank disbursements are transfers to natural or legal persons to drive final stages of expenditure and settle State creditors; operations are non-transparent and rarely documented ex-post, presenting significant fraud risk. - Budgetary reports and financial statements: low quality and coverage undermine accountability. - General accounts are still established in single entry accounting. - Budget execution reports cover only receipts and expenditures. - No consolidation has been carried out on the whole territory and the public sector. ### Oversight of State-Owned Enterprises (SOEs) and extractive sector - Oversight mechanisms for SOEs are weak, with poor financial reporting and unclear oversight responsibilities. - State centralized management of public enterprises in the portfolio ministry; two consultative entities created for supervision and reforms. - Reforms often determined by senior management without team involvement. - Financial information quality is poor; disclosures minimal; unclear which agency can demand reliable and timely financial data from SOEs. - Example: Gécamines engages an external auditor but publishes only the auditor's opinion; unclear government responsibility to respond to opinions. - Extractive sector deficiencies: - Lack of transparency and accountability, weak regulation and rule of law. - Lack of transparency in rules regarding revenue projections, collection and sharing. - Revenue projections from the mining sector are unreliable. ### Financial sector oversight and accounting standards - Central Bank of Congo (BCC) progress: - BCC continues measures to follow up weaknesses identified by IMF’s assessment of the Basel Principle 2013. - Process to adopt risk-based monitoring has started but full implementation in supervisory and financial institutions is unfinished. - With AFRITAC Central, methodological guidelines on on-site risks and off-site training on monitoring and evaluation processes are being developed. - Prudential regulations: standards on corporate governance, transactions with related parties, internal controls and risk management for banks are being adopted. - IFRS have not yet been adopted; adoption is needed to guarantee better quality of financial information. - Note from source: IFRS adoption postponed various times; new dates for IFRS 9 adoption and full transition to IFRS are January 2020 and 2021. ### Judiciary, rule of law, property and business environment - Judiciary challenges: - Resources, capacity and independence issues undermine ability to address corruption. - Very little confidence in the judiciary; stakeholders avoid formal judicial process for civil and commercial disputes. - Underfunding results in inadequate salaries for magistrates and judges, insufficient resources/infrastructure, and shortages of magistrates/judges at all levels. - Few official court decisions are published. - Execution of commercial contracts is problematic; perception that justice is fueled by corruption and manipulable. - Property registration: - Process is laborious, expensive, time-consuming and inefficient. - Newly issued land documents kept only on paper, increasing risk of loss/misplacement. - DRC lacks a reliable system to enforce property and contractual rights and resolve disputes. - Private sector governance challenges: - Despite liberalization steps (e.g., one-stop shop), excessive discretionary application of regulations and complex regulation encourage rent-seeking and unequal conditions. - Complexity and volume of tariffs, sectoral and provincial requirements give rise to uneven and discretionary application of regulations. - Complex tax and customs systems lead to abusive application of procedures or unfair advantages for politically connected businesses. ### Anti-corruption, AML/CFT and institutional frameworks - Anti-corruption framework: - Disjointed and lacking key elements. - Observatory for Monitoring Corruption and Professional Ethics (OSCEP) raises awareness but has no investigative or enforcement powers and lacks resources. - No independent anti-corruption agency with powers to develop and implement prevention measures (an obligation under UNCAC, acceded in 2010). - DRC has not initiated the first cycle of the UNCAC review mechanism. - Constitution prohibits law enforcement agencies from investigating and prosecuting parliamentarians. - Asset declaration regime provided by Article 99 of the Constitution is not implemented. - AML/CFT regime: - Presents significant deficiencies and is not compliant with the 2012 FATF standards. - Corruption is a main predicate crime for money laundering in the DRC. - ML risks: proceeds from corruption by senior public officials integrated into the financial system, often laundered domestically through real estate and abroad (documented in prosecutions by foreign authorities). - National Financial Intelligence Unit (CENAREF) received few Suspicious Transaction Reports (STRs), with only one resulting in prosecution, contrasting with country’s risk profile. - Legal AML/CFT framework does not sufficiently cover all financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs). Some institutions operate entirely outside AML/CFT requirements promulgated by the Central Bank (insurance sector, electronic money services businesses, Postal Service financial services). Professions such as lawyers are not adequately covered. ### Key recommendations (high level, with priorities and due dates as provided) - Public finance - Codify all central levies in a General Tax Code, including all non-tax revenue. Due: Immediately. - Adopt the decrees necessary to relaunch the work to assess the 2020 tax expenditure assessment for 2018. Due: Immediately and over the next three years (2020-2023). - Rationalize non-tax revenues to reduce their number to the strict minimum by the end of 2023. Due: Immediately. - Rationalization of excise taxes. Due: Gradual rationalization in the 2020 to 2023 budgets. - Reform derogatory regimes (tax exemptions). Due: End-2021. - Launch working group to oversee development of provincial taxation and ETDs to develop exhaustive code of levies. Due: Immediately. - Conduct review of special accounts, eliminate duplicates, entrust remaining collections to tax agencies by end of 2020. Due: Immediately, aiming to propose more restrictive framework by end of 2023. - Complete inventory of organizations with annexed budgets and supervise revenue practices. Due: Over 2020-2023. - Eliminate strategic partnership regime for value chains and related exemptions (except codes currently in place). Due: End-2021. - Conduct census and unification of payroll and public service files. Due: Immediately. - Revenue collection - Implement short-term measures proposed by the mission (see mission tables). Due: Immediately. - Develop strategy to digitize main procedures, modernize HR management, and strengthen internal control and monitoring. Due: End-2021. - Public financial management - Extend coverage of the TGA to all central government operations by funneling central and local revenue, as well as any parafiscal tax collected by a third party into the TGA open at the central bank. Due: Over 2020-2023; All parafiscal taxes in the TGA by 2021; All local revenue and public corporation cash in the TGA by 2023. - Secure critical liquidity on sequestered BCC sub-accounts reserved for operations (VAT refunds, provisions for risks and precautionary cash). Due: Sequester accounts ready by end 2021. - Operate the extended TGA under current conditions. Due: Sequester accounts ready by end 2021. - Carry out accounting reform to professionalize treasury and accounting functions (establish a network of public treasurer-accountants, double-entry accounting, centralized procedures). Due: Immediately and continuous. - Restore normal expenditure procedures and legal framework for Treasury functions (apply common law procedures to secure expenditure and control budget execution; specify emergency spending limits). Due: Starting immediately; legal framework ready in 2020; capacity reinforcement over 2020-2023. - Extractive sector - Create a beneficial ownership registry. Due: Immediately and over 2020-2021. - Ensure full consultation of any decree defining beneficial ownership. Due: Immediate and ongoing. - Ensure disclosure requirements on joint venture contracts and revenue projections. Due: 2021. - SOEs - Assess rationale for state ownership. Due: Immediately and over 2020-2021. - Introduce accountability triggers for SOE performance contracts. Due: Immediately and over 2020-2021. - Follow up on auditors' qualified opinions. Due: Immediately and over 2020-2021. - Develop a monitoring system for public policy obligations. Due: End-2021. - Invigorate functions of the State Auditor on budget allocation. Due: End-2021. - Assess need for additional magistrates to support the State Auditor mandate. Due: End-2021. - Identify and raise the bar of corporate governance for strategically important SOEs. Due: End-2021. - Publication of financial statements of SOEs. Due: Immediately. - Conseil Supérieur du Portefeuille (CSP) to provide timely annual aggregate reporting for the SOE portfolio. Due: End of the next financial year. - Comprehensive publication of mining, oil, and gas contracts, particularly transactions between state-owned entities and private companies or with the Congolese state. Due: Immediately and ongoing. - Legally expand perimeter of Ministry of Portfolio oversight to include indirect state participations. Due: End-2021. - Rule of Law - Establish a publicly accessible central repository of updated laws and regulations. Due: Immediately. - Create a digital property register to address loss/falsification of property documents. Due: Commence immediately and build over the next 12 to 18 months. - Publish all court decisions. Due: Immediately. - Conduct proper investigations of and impose actual sanctions on magistrates/judges who abuse office for personal gain; publicize investigations and sanctions. Due: Immediately. - Strengthen supervision of notaries to fully protect property owners. Due: Immediately; enact legislation by end-2021. - Anti-corruption framework - Engage in the first cycle of the UNCAC review mechanism (Review Cycle I). Due: Commence the process immediately with Mauritius and Vietnam (reviewing countries). - Criminalize acts of corruption in line with the United Nations Convention Against Corruption. Due: Commence immediately. - Establish and operationalize an independent anti-corruption agency. Due: Mid-2021. - Abolish immunity for Parliamentarians and the approval process needed to lift such immunity to enable the Public Prosecutor to carry out its work. Due: Immediately. - Enact a robust asset declaration law to give effect to Article 99 of the Constitution. Due: End-2020. - Confiscate proceeds of crime and assets of equivalent value, focusing on identification, location and tracing of existing asset values associated with an offence. Due: Immediately. - Market regulation & business environment - Ensure full operationalization and sustainability of the guichet unique and make bureaus/antennas financially autonomous. Due: End 2021. - Create a central registry of collaterals across all banking sector. Due: End 2021. - Create a Companies Registry database linked with business registration platform where companies file annual accounts maintained in a useable format. Due: End-2021. - Implement ASYCUDA World in the electronic single window involving all stakeholders. Due: Early 2022. - Financial sector oversight - Implement upgraded regulations on banks’ governance, internal controls and risk management. Due: Immediately. - Continue adoption of risk based supervisory processes and practices. Due: Immediately. - Address corrective action disclosure and powers. Due: Immediately. - Continue working with AFC to improve implementation of licensing requirements. Due: Ongoing. - AML/CFT - Amend the AML/CFT Law and related regulations to ensure compliance with the FATF standard. Due: Immediately. - Implement a comprehensive asset declaration framework to strengthen effectiveness of PEP measures. Due: 2021-2022. - Strengthen the CRF with resources and independence to carry out its mission. Due: 2021-2022. - Strengthen supervision of financial institutions by further developing risk-based supervision, in particular on banks. Due: 2021-2022. - Issue guidance on AML/CFT recommendations and encourage banks to file suspicious activity reports (including on money laundering typologies related to the extractive sector). Due: Immediately. - Revise legal framework applicable to legal persons and arrangements in line with FATF standard. Due: Immediately. - Implement mechanism to ensure competent authorities can obtain adequate, accurate and current beneficial ownership information on legal persons and arrangements in a timely manner. Due: 2021-2022. - Define a penal policy oriented at suppressing ML and its underlying predicate crimes, supported by parallel financial investigations, focusing on main risks identified in the NRA. Due: During 2021-2022. - Develop procedural manual for international cooperation to clarify processes, priorities, timeframes and confidentiality for MLA requests. Due: During 2021-2023. - Create within the office of the Public Prosecutor at the Court of Appeal a dedicated unit for international cooperation to track and manage MLA requests, including ML/TF. Due: During 2021-2023. - Sign bilateral agreements and formalize international cooperation with countries sharing informal channels for information exchange, prioritizing those with heightened ML/TF risks. Due: During 2021-2023. ### Evaluation—Fiscal governance highlights - Fiscal context: - In 2018, tax and nontax revenue in the DRC amounted to only 10 percent of GDP. - Barely one-twentieth of this amount in 2018 was in domestically financed public investment. - Implications: - Low revenue and spending inefficiency are closely linked. - Corruption is identified as a major handicap for revenue performance in Sub-Saharan Africa and particularly in the DRC. - Taxpayer compliance is weakened by a widespread sentiment that the tax system provides no benefit to taxpayers. - Strength and quality of public spending (social spending and infrastructure) can promote tax compliance by delivering visible benefits to citizens. *Source: EXECUTIVE SUMMARY (1codea2021001).* ### 3. The DRC’s budgetary problems are linked to three major issue s of governance. First, ### 3. The DRC’s budgetary problems are linked to three major issues of governance. First, ### Tax System: Complex and non-Transparent - Findings - The tax system is complex and opaque and must be streamlined significantly by the adoption of clear legislation that is complete and accessible, as well as nondiscretionary processes. - Each level of government (central, provinces and decentralized territorial entities or ETDs) collects revenue. - VAT, income taxes, excise taxes and various import duties account for 79 percent of central government revenue. - The General Directorate of Administrative and Government Property Revenue (DGRAD) collects and returns revenue to the Treasury and accounts for 21 percent of central revenue, half of which is from a few royalties on natural resources. - There are up to 137 possible types of taxes/charges by the 26 provinces, and 38, 34 and 38 possible types of taxes/charges by cities, communes and chieftaincies, respectively. - There are 11 special funds, as well as roughly 800 entities of specific central government budgets (Budgets annexes), whose revenue practices are not yet indexed or codified. - Collections from public enterprises and special tax types (including PPP arrangements) are often poorly supervised and proceeds do not necessarily go into the TGA. - The number of categories of taxes fell from 1,232 in 2000 to 246 in 2018, but classification gaps and artificial consolidations remain. - The 2018 establishment of unique provincial and local classifications widened the scope of possible direct revenue instruments for provinces and ETDs; provinces expressed determination to fully use fields proposed by the new classification. - Revenue projections are systematically overestimated; budgeted revenue rose from 12.5 percent of GDP in 2019 to 21.1 percent in 2020, whereas recent revenue numbers are closer to 10 percent—forcing drastic and arbitrary spending cuts that often affect peripheral sectors (investments, transfers to provinces, goods and social services). - Revenue legislation is scattered; there is no General Tax Code other than an incomplete compilation of tax statutes. Excise taxes have their own code managed by DGDA; central sectoral ministry taxes are detailed in joint orders; special funds have their own statutes and collection services. - Several provincial revenue categories are based on ad hoc conventions and are not properly made official; implementing decrees are often missing. - The proliferation of tax types and opaque statutes facilitate petty corruption by increasing contact points between civil servants and the public and creating pressures to charge for services that may be free by nature. - The import legal framework effectively creates a personal daily import exemption of $2,500 because an import license (and preshipment inspection) is mandatory only above $2,500; DGDA counted just 0.22 percent of imports (in value) as allowances in 2017 and 2018, implying large under-reporting and corruption at borders. - Exemption regimes are discretionary and arbitrary; known loss of earnings totals 5.7 percent of central government revenue (in addition to tax expenditures under Mining, Forestry and Hydrocarbons Codes not fully covered). - In 2019 authorities estimated tax expenditures (based on 2017 data): tax expenditures would represent 22.3 percent of central government revenue, mainly concentrated in the Mining Code and government contracts using external financing. - Key statistic: Table — Tax Expenditures in the DRC (2017) - Ordinary rules: Lost revenue (MM of CDF) 29.8; Share of the total (%) 2.9; Share of central tax and non-tax revenues (%) 0.7 - Tax code: Lost revenue (MM of CDF) 9.1; Share of the total (%) 0.9; Share of central tax and non-tax revenues (%) 0.2 - Customs tariffs: Lost revenue (MM of CDF) 20.7; Share of the total (%) 2.0; Share of central tax and non-tax revenues (%) 0.5 - Special derogations: Lost revenue (MM of CDF) 987.8; Share of the total (%) 97.1; Share of central tax and non-tax revenues (%) 21.7 - Investment code: Lost revenue (MM of CDF) 61.6; Share of the total (%) 6.1; Share of central tax and non-tax revenues (%) 1.4 - Mining code: Lost revenue (MM of CDF) 480.1; Share of the total (%) 47.2; Share of central tax and non-tax revenues (%) 10.5 - Public contracts with external financing: Lost revenue (MM of CDF) 158.9; Share of the total (%) 15.6; Share of central tax and non-tax revenues (%) 3.5 - NGOs and NPOs: Lost revenue (MM of CDF) 69.7; Share of the total (%) 6.8; Share of central tax and non-tax revenues (%) 1.5 - Strategic partnerships: Lost revenue (MM of CDF) 40.1; Share of the total (%) 3.9; Share of central tax and non-tax revenues (%) 0.9 - Agricultural exemptions: Lost revenue (MM of CDF) 1.6; Share of the total (%) 0.2; Share of central tax and non-tax revenues (%) 0.0 - Cooperation projects: Lost revenue (MM of CDF) 1.2; Share of the total (%) 0.1; Share of central tax and non-tax revenues (%) 0.0 - DGRAD: Lost revenue (MM of CDF) 174.6; Share of the total (%) 17.2; Share of central tax and non-tax revenues (%) 3.8 - Total: Lost revenue (MM of CDF) 1017.5; Share of the total (%) 100.0; Share of central tax and non-tax revenues (%) 22.3 - Policy implications / required actions - Adopt clear, complete, and accessible legislation and nondiscretionary processes. - Rationalize and codify revenue classifications and limit proliferation of revenue instruments. - Amend the import legal framework to close the de facto $2,500 personal daily import exemption that facilitates under-reporting and corruption. - Improve transparency and accessibility of all revenue statutes and implementing decrees for provinces and ETDs. ### Revenue administration: need to modernize it and re-establish taxpayer trust - Findings - Strengthening governance of the three main revenue administrations (DGI, DGDA, DGRAD) and reducing corruption vulnerabilities requires measures grouped into four areas: (1) restoring taxpayers’ trust through better consideration of their rights; (2) digitizing procedures and streamlining administrative interventions; (3) improving statutory frameworks and revising human resources management processes; and (4) strengthening supervision and internal and external control and promoting accountability. - Restoring trust requires balancing taxpayer rights and administration powers; current imbalances include unjust procedures for processing claims (eligibility requirements, high surety payments, lengthy investigations, tacit rejection), absence of an independent pre-legal appeals body, and numerous penalties and collection rates that are often very high. - Recommended transparency and communication measures - Improve availability and accessibility of information via websites, social networks, TV/radio, workshops, posters, etc. (the DGRAD does not yet have a website). - Publish a wide range of information to improve compliance and deter corrupt arrangements; suggested information includes: - All texts of a fiscal, customs or non-fiscal nature (Immediate and permanent) - Anonymized responses to individual user requests (Immediate and permanent) - Procedures manual, job description and professional directory of agents (Immediate and permanent) - Signing and decision-making powers and delegations (Immediate and permanent) - Vision, strategic plan, means and performance of the revenue collected (Annual) - Anonymous complaints and opinion polls on service perception (Permanent) - Statistics of complaints or appeals lodged and of tax audit (Quarterly) - List of chronic defaulters and large debtors (Quarterly) - Statistics of disciplinary measures taken by type of offense (Monthly) - Taxpayer lists, location, liability status, tax clearance (Monthly) - Organic framework, Code of ethics and Administrative Regulations (Permanent) - Customer service charters and job performance standards (Permanent) - Urgent measures to improve processing of complaints or appeals (Table 4) - Eliminate the “surety” to take advantage of the additional time allowance for collection (currently 10 percent of the amounts disputed in the DGI, 100 percent in the DGRAD and 100 to 200 percent of duties in exchange for releasing goods). Impact: lowers vulnerability to arrangements; Priority: High. - Shorten and harmonize time frames for investigating files from 6 to 1 month. Impact: strengthens users’ rights and protects from arbitrary decisions; Priority: High. - Tacit acceptance of the complaint if no reply is forthcoming by the deadline. Priority: High. - Put in place an independent and parity entity for pre-legal action appeals. Impact: strengthens users’ rights; Priority: Medium. - Streamline tax relief decisions by unburdening the ministry. Impact: holds administration officers accountable; Priority: Medium. - Reduce, simplify and group fines and penalties by category. Impact: reduces vulnerability to arrangements; Priority: High. - Adopt late interest at a low rate and eliminate prosecution costs. Impact: facilitates collection and limits litigation; Priority: Medium. - Charge moratory interest for VAT refunds in case of delays. Impact: holds officials accountable and strengthens users’ rights; Priority: Medium. - Additional governance reforms - Promote a culture of transparency and balance powers between taxpayers and administrations to restore trust and foster voluntary compliance. - Digitize procedures and streamline administrative interventions to reduce discretionary contact points and opportunities for petty corruption. - Revise human resources management and strengthen internal and external supervision, control and accountability across DGI, DGDA and DGRAD. - Incorporate these measures into the strategic plans of the three main administrations, fine-tuned to capacities. *International Monetary Fund — content from 1codea2021001* ### 16. The legal process is not procedurally reliable as rulings are not always consistent. ### 16. The legal process is not procedurally reliable as rulings are not always consistent. ### Procedural reliability and legal framework - Laws, rules and procedures that are clear and stable are not always guaranteed, promoting arbitrary decisions (examples: unilateral tax relief, issues with advance tax payments). - There are not always methods to ensure that the revenue administrations are consulted or can express opinions before a law, regulation or decision with consequences for revenue is enacted. - The multitude of administrations (DGI, DGDA, DGRAD and the 58 national tax assessment units, 26 revenue agencies with 10 province-based tax assessment units) involved in tax calculation, auditing and collection increases interactions and raises risks of collusion between users and staff members. - Operational illustrations: - A business is required to use an employee full time for one month to complete their tax returns. - It takes at least 22 days to prepare the documents needed for goods to clear customs. ### Digitalization and streamlining of procedures (findings and recommended actions) - Key findings: - DGI procedures and those of the DGRAD remain largely manual despite increased use of banks for payments; DGRAD procedures are divided into four manual steps (verification, payment authorization, payment and updating) and involve many parties and significant travel. - Customs procedures use ASYCUDA World but redundancies remain because the Single Foreign Trade One-Stop Shop (GUICE) does not include ASYCUDA World. - DGDA collected CDF 1,477 billion for the general budget and CDF 521 billion as related revenue in 2018. - Some customs clearance procedures remain manual; computerization of all customs clearance procedures would decrease direct contacts, shorten customs clearance times and costs, and mitigate harassment. - Short-term enforcement recommendation: - Enforce Decree No. 036 of February 28, 2008 (entities authorized to work in customs posts) and Decree No. 13/052 of November 11, 2013 on strengthening collections for imports and exports (as modified). - Impacts expected from digitalization: - Facilitate compliance with obligations. - Improve traceability in the DGI and DGRAD. - Reduce compliance cost and limit interactions between taxpayers and staff members. ### Specific measures to upgrade reporting and payment procedures (from Table 5) - DGI. Create online tax accounts that large businesses can access. - Impacts: Improves transparency and traceability; Limits contacts between users and agents; Lowers costs of taxpayer compliance. - Deadline: June 2020 - DGI. Bring remote reporting and remote payment into widespread use for large businesses. - Deadline: October 2020 - DGI. Online procedure for complaints and requests for VAT refunds. - Deadline: October 2020 - DGI. Launch the project for payment of small taxes via mobile terminals. - Deadline: December 2020 - DGI. Launch remote reporting and remote payment for medium-sized enterprises. - Deadline: April 2021 - DGDA. Enforce Decree No. 036 of February 20, 2008 and Decree No 13/052 of November 11, 2013. - Impacts: Limits contacts between users and agents; Lowers costs of taxpayer compliance; Lowers time frames for goods to clear customs. - Deadline: Immediate 2020 - DGDA. Interconnect ASYCUDA World with the GUICE application. - Deadline: Immediate 2020 - DGRAD. Remote reporting and remote payment for large mining businesses. - Impacts: Improves transparency and traceability; Limits contacts between users and agents; Lowers costs of taxpayer compliance. - Deadline: November 2020 - DGRAD. Extend remote reporting and remote payment for the other businesses. - Deadline: June 2021 - DGI/DGRAD. Create a virtual one-stop shop for reporting and payment. - Deadline: December 2021 ### Streamlining and normalizing interventions in businesses (from Table 6) - Measures and impacts: - Limit the total time of on-site audits in businesses to two months. - Impacts: Reduces temptations that can generate excessive familiarity between staff members and users; Lightens administrative burden and costs for businesses; Improves scheduling and staff productivity. - Deadline: June 2020 - Lower the number of audits in businesses by the staff members of the MoF. - Deadline: June 2020 - Review notifications with high stakes or with significant amounts of back taxes. - Deadline: August 2020 - Put in place the regularization procedure during an audit without any increase or fine. - Impacts: Improves relations and encourages better taxpayer compliance without arrangements; Lightens administrative burden and costs for businesses. - Deadline: January 2021 - Put in place the audit procedure based on demand without an increase or penalties. - Deadline: January 2021 - Prohibit current or retired staff members from working as tax advisors or customs declarants (must wait four years). - Impacts: Enhances the profession and limits influence peddling with working staff members; Eliminates “rainmakers” who often also serve as go-betweens. - Deadline: January 2021 - Eliminate the share of advisors of the revenue administrations and the IGF. - Deadline: January 2021 ### Cost of compliance, inspections and revenue performance - Costs of compliance are high and represent an incentive to corruption; digitizing key procedures should mitigate detrimental effects on efficiency and reduce risks. - Inspection yields recorded in 2018: - DGI inspections: 4 percent of revenue collected by the DGI in 2018. - DGDA inspections: 0.2 percent of revenue collected by the DGDA in 2018. - Example of complexity: mining companies face at least 10 inspection and collection entities at central and local levels. ### Human resources management in revenue administrations (findings and measures) - Findings: - Human resources management is characterized by subjective resource management, a complex compensation system that does not encourage good performance, weak sanctions and a culture of impunity. - Specific challenges: senior civil servants appointed or promoted without general directors’ input; lack of turnover (30 percent of employees in the Large Enterprises Directorate have been in post since 2002, and that directorate produces 85 percent of the DGI’s revenue); attempts to assign unqualified newly hired employees without training. - Proposed pragmatic measures (from Table 7): - Adoption of clear rules limiting assignment in positions in contact with the public to 4 years. - Impacts: Reduces frustrations between agents; Ends culture of impunity by example; Holds general managers and directors responsible. - Deadline: August 2020 - Reinforcement of disciplinary measures and sanctions within administrative frameworks. - Deadline: January 2021 - Rationalization of bonuses and upward revision of base salaries; introduction of a technical bonus or "IT bonus". - Impacts: More equitable and standardized distribution of litigation premiums among agents and elimination by advisers; Improves the traceability of operations; Limits direct contact with users. - Deadline: May 2020 - Compensation system characteristics and examples: - DGI: revenue collection bonus (55 percent of proceeds from issuance of bonuses, amounting to 5 percent of revenue collected); pending litigation bonus based on series of penalties (40 percent of the amount of penalties, 20 percent of which is for the advisors, remainder divided among employees). - DGDA: at least 16 types of bonuses (interim bonus, incentive bonus, special incentive bonus, responsibility bonus, housing allowance, risk bonus, cash bonus, inconvenience and health bonus, loyalty bonus, one-time bonuses, annual bonus or gratuity, compensatory overtime bonus, rural bonus, on-call and office presence bonus, non-private client bonus, pay bonus, pending litigation bonus). - Problems identified: bonuses issued monthly regardless of targets met; unstable and unpredictable; creates rush to issue sanctions and charge penalties often collected before back taxes earmarked for the government budget. - Monetary bonus ranges noted in the DGDA context: monthly stimulation bonus varies according to rank from $174 to $1,210; special monthly stimulation and responsibility bonuses and housing allowance vary respectively based on rank from $110 to $750, from $87.50 to $250, and from $120 to $1,000. ### Customs, border posts and informal imports - Unauthorized cross-border imports persist at border posts (examples: Lufu, Kasumbalesa, Ishasha, Kasindi, Mahagi), using a simplified customs clearance regime with manual payment of "standard customs duties" and fewer quality controls. - Consequences: loss of revenue for central administration, distorted competition, and encouragement of corruption. - Recommendation: Once resources of these offices are strengthened, imports must be subject to computerized import procedures in accordance with trade laws and exchange regulations. ### Internal control, accountability and public confidence - Internal control needs reinforcement to ensure uniform application of procedures and improve traceability. - Implementation of automated and robust operations monitoring systems (example: ASYPM performance measurement module in ASYCUDA World at the DGDA) will improve internal control and reliability of audits. - Automated systems will improve traceability through use of cookies and access logs. - Promoting accountability and restoring public confidence: - Use all communication channels (website, social networks) to increase awareness of actions and performance of the three revenue administrations. - Currently, express requirements to regularly publish performance reports exist only for the DGDA. - Implement tools to carry out large-scale opinion surveys and collect comments on public interactions with agents, including reporting of unethical behavior. ### Expansion and limitations of the Treasury General Account (TGA) - Current TGA/banking mechanism: - Taxpayers and others must deposit payments in a fund deposit institution (banks, savings banks, post office). - These institutions must level out balances in their government revenue deposit accounts in the TGA within 48 hours after deposit. - The BCC must make funds deposited in the TGA available to managers based on orders from accredited authorities and in accordance with the expenditure chain. - Good practice: the banking mechanism and ban on cash deposits are recognized and used; banking systems are interconnected with revenue administrations for monitoring. - Limitation of scope: - Special accounts, earmarked taxes and specific budgets (“budget annexes”) are exempted from using the bank revenue circuit and the requirement of depositing into the TGA. - Numerous transfers to custodians for expenditures are also outside the TGA. - In December 2019, the TGA was the depository of only 28 percent of public liquidity. ### Public procurement and expenditure execution vulnerabilities - Three critical processes: government procurement, budget execution, and cash disbursements. - Government procurement, especially for investment projects, is particularly vulnerable to corruption (bribes, commissions, concealed kickbacks) which raise production costs and reduce efficiency. - The expenditure chain may be subject to fraud, particularly during simplified procedures. - Handling of public funds by treasurers or accounting officers can generate attempts to divert funds; if widespread, this impoverishes government coffers and erodes public trust. - These critical points require special attention. *Source: 1codea2021001 - 16. The legal process is not procedurally reliable as rulings are not always consistent.* ### Introduction of Competitive Bidding ### Introduction of Competitive Bidding ### Legal and institutional framework - The Procurement Code was adopted in 2010. - The regulatory framework was adopted and updated periodically (in particular procurement thresholds). - The Public Markets Oversight Directorate and the Public Markets Regulatory Authority (ARMP) have been operating since around 2011. - Procurement and contracting units are operational in the sectoral ministries, institutions and public enterprises and establishments. - ETDs are included in the Procurement Code and are subject to the same procedures and procurement thresholds. - The administration does not yet have an effective information system for procurement management; the process of computerizing government procurement management was initiated through the acquisition of Integrated Government Procurement Management System (SIGMAP) software. - The procurement system is quite complete at the central level but very incomplete in the provinces where the ARMP has been only partially deconcentrated; procurement units are seldom made available to the governors. ### Observed procurement practices and outcomes - Noncompetitive procedures (private agreements, direct agreements or mere consultation with suppliers) became the rule in 2018. - In 2018, just 14 percent of government contracts were made through competitive bidding. - Most contracts in 2016-2017 were made outside the general government budget by public enterprises or establishments. - The share of contracts implemented by the territorial entities is minimal. - Factors cited contributing to poor competition and collusion include: - length and complexity of procurement procedures which may discourage bidders; - poor competitiveness of some economic sectors due to low market diversification; - widespread use of predatory practices aimed at taking commissions, kickbacks or undue advantages when contracts are awarded. - This drift appears to explain the very poor performance of public investment in the Congo compared to its neighbors and contributes to a widespread sentiment of collusion between economic operators and public decision-makers. ### Public-private partnerships (PPPs) and large projects - The statutory framework that applies to PPPs is very recent (2018). - Law No.18/016 of July 9, 2018 in respect of public-private partnerships. - Regulatory and operational implementation for PPPs is still in progress; institutions in charge of procurement and monitoring the PPPs are not yet in place. - Informal PPPs already exist as delegations of public service or spontaneous and self-financed bids. - The stock of fixed capital established in PPPs according to the definition adopted by the international institutions amounted to 4.6 percent of GDP in 2015. - Studies will need to be conducted to give the administration a reliable management framework for PPPs, particularly for major projects with foreign operators. ### Expenditure chain, execution modes, and risks - The expenditure chain in principle consists of four phases: commitment, liquidation (under sectoral ministries); authorization (under MoF through the Treasury and Authorization Department); and payment (under the Central Bank as State cash office). - The share of expenditure normally executed according to these procedures has decreased in recent years. - Expenditures made under emergency procedures became preponderant in 2018. - Expenditures made under standard procedures now account for only about one percent of non-compensation expenditures. - Emergency procedures represent a macro critical risk given their volume (0.7 percent of GDP in 2018). - Specific expenditure-procedure risk assessment: - Debt service: low risk (procedures do not imply receipt of goods or services; usually paid using a simplified procedure). - Compensation: higher risk (controls seem to be poor and barely operational; payroll files and civil service files are being consolidated; ministry plans a survey to detect duplications, fictitious employees and other anomalies). - Emergency procedures: macro critical risk (two options exist for exceptional expenses: payment without prior authorization or payment on the order of the Minister responsible for the budget; expenses are rarely documented ex post and do not meet usual transparency standards). ### Securing handling of government funds and accounting quality - Payment is the final stage in the expenditure execution chain according to the Budget and Cash Management Law (LOFIP) and the General Regulation on Public Accounting; it implies real movements of cash and discharges the government from its debt to a creditor. - In principle payments are executed through a bank transaction in the TGA or another bank account. - LOFIP and the general public accounting regulation assign responsibility for handling government funds to government accounting officers, who should be properly appointed and monetarily accountable. - There is still no network of properly structured government accounting officers in the DRC. - A significant part of bank disbursements is made in the form of transfers to individuals or legal entities responsible for performing the final stage of expenditures and paying government creditors; these transactions are executed with no concern for transparency and are seldom documented ex-post, representing a significant risk of misappropriation, fraud or cronyism. - General accounting is still prepared using a single-entry system. - Budget execution reports only cover expenditures. - There is no consolidation throughout the entire country and the public sector; the administration lacks high-quality budgetary reporting and double-entry accounting used in most neighboring countries. ### Public sector composition, governance, and decentralization - The public sector encompasses activities under total or partial control of the central government, the provinces and the ETDs; it consists of three components: public administrations, public institutions (establishments), and SOEs. - Public administrations include the central government and the 26 provinces (one of which is Kinshasa, a city-province). - Public establishments provide essential public services (education, health, regulation, maintenance of public services and essential infrastructure) and are in principle not intended to be profitable. - SOEs are enterprises in which the central government or local governments hold at least 51 percent of the share capital; their statutes vary and they may fall under private law or public law. - Public sector governance is poor: institutions, agencies, offices and companies sometimes benefit from assigned parafiscal taxes; they sometimes present profit and loss accounts with delay and more rarely balance sheets establishing their assets and liabilities; state guardianship is poorly organized; there is no structured policy for public sector management. - Decentralization process incomplete: under the 2006 Constitution local elections should have been held; in 2019 provincial assemblies were directly elected and provincial governors elected by provincial assemblies; in the absence of sub-regional elections ETDs are headed by mayors or chiefs appointed by the central administration. - Local administrative capabilities are extremely weak: standard structures for managing resources and government procurement are yet to be put in place in all provinces; information systems are nearly nonexistent and fragmented; sector, city and group management lack modern capabilities; transparency of local finances has yet to be established; budgets and financial statements of provinces and ETDs are drawn up late; central authorities have not consolidated accounts of central and decentralized administrations. ### Structural risks from lack of transparency at local level - Approximate governance: available provincial financial information fails to shed light on public policy conduct or detect fraud or inefficiencies. - Financial disparities: growing revenue gaps among ETDs are barely or poorly offset by equalization systems, posing a political risk for stability and unity. - Distorted local markets: poor competitiveness promotes collusive oligopolies and rent-seeking to the detriment of effective local development. ### Human resources management - Administration human capabilities are poor; weak human capacities create incentives for rent-seeking and petty corruption. - Recruitment historically based on title rather than competitive testing. - The National School of Administration is only in its sixth class of students and issues about 100 new diplomas per year. - Older employees postpone retirement because they are not certain of receiving their pensions. - Exceptional recruitments conducted in 2018-2019 (of the order of 700,000) brought a new and abundant workforce, sometimes overwhelming and often unqualified. - Public service salaries are unattractive or insufficient, leading some employees to take a second paid position in the private sector, risking conflicts of interest or absenteeism. - Weaknesses are particularly evident in the central government’s finance function, which should be a coherent and interconnected whole involving sectoral ministries’ financial and planning departments as extensions of finance departments. ### Extractive sector governance (overview) - Of the three main extractive sectors, the mining sector is by far the most important, accounting for 95.3 percent of exports. - Hydrocarbons account for 3.7 percent of exports. - Forest products account for 0.3 percent of exports. - There is only one oil exploitation (Perenco, with 25,000 bl / d in mature fields). *Source: 1codea2021001 - Introduction of Competitive Bidding* ### Box 1. Towards an Integrated Public Finance Reform Strategy ### Box 1. Towards an Integrated Public Finance Reform Strategy ### Linkage between revenue and expenditure; where to start - The problems of revenue and expenditure are intimately linked, the fragmentation of the former being linked to the inadequacies of the latter. - Natural resource royalties and state revenues (VAT, customs, income tax, excise duties, royalties on natural resources) represent almost nine-tenths of the revenue. - Simplifying non-tax revenue would greatly improve the business climate but "would in itself generate little additional revenue." - The weakness of state revenues is more immediately a problem of revenue administration (extension of the tax base) than of fiscal policy. - Increasing state revenues should facilitate simplification by channeling more funds to sectoral ministries, but channeling such funds also depends on: - strengthening budgetary processes; - extension of the budget perimeter (in particular by the integration into this perimeter of special accounts, annexed budgets, etc.); - strict monitoring, budgetary procedures and central control over all public expenditure, in particular through a single functional Treasury account. ### Priority reforms and timing - The mission recommends that reforms of the tax administration (in particular to the DGI) and budgetary reforms must take priority and be carried out immediately and in parallel over the next three years (2020 - 2023), which implies among others realistic revenue forecasts. - Specific timing and sequencing: - The codification of all central government tax texts could be accomplished quickly (end 2020). - The rationalization of non-tax revenues should be accomplished over a longer horizon (implemented end 2023); this work is facilitated by an increase in revenue and requires difficult inter-ministerial coordination. - A rationalization of excise taxes could go ahead immediately, as well as a reform of the derogatory regimes. - Reforms at the provincial level could then follow (2023 - 2028), although their substance should be discussed immediately, in particular by establishing a complete inventory of texts and practices. ### Mining sector institutional setting and governance - Governance of the mining sector is ensured by the Ministry of Mines and the Ministry of Portfolio. - The regulatory and supervisory functions of the Ministry of Mines are weak: - Main regulatory function is to grant and withdraw permits according to financial and technical criteria, but decisions of agencies (in particular the mining cadaster) must be individually approved by the Minister. - The mining cadaster has only five provincial branches and is not sufficiently equipped to manage mining at the national level. - The status of Cadaster employees is precarious (agents de l’Etat); employment contracts do not entail permanent jobs even though they fall under the agents publics d’Etat category. - Several companies only partially (or not at all) meet documentary obligations to the Ministry of Mines (particularly financial statements), producing weaknesses in permit management and suboptimal permit turnover. - Public enterprises are not very transparent, difficult to access, and do not fulfill regulatory obligations. - Historical and practical monopoly issues: - Before the 2002 Mining Code the mining sector was a monopoly of the State; today mining rights are for all practical purposes a monopoly of the SOEs. - The 2002 Code introduced the cadaster and assigned mining rights related to public domain to SOEs (article 340 of the old mining code). SOEs continue to hold these rights on behalf of the State and represent the main entry point for private companies. - As of the time of the report, Kamoa-Kakula is the only major project not associated with any of the SOEs (the DRC government holds a direct 20 percent interest in it). - Ministry of Portfolio role and limitation: - The Ministry of Portfolio manages and supervises the State's holdings in public enterprises and free interests (carried interest) in a number of mining companies. - The Ministry of Portfolio does not currently oversee indirect participations of the State, leaving out contracts that SOEs enter with other partners (JVs), which is a major governance flaw given that the DRC’s mineral production is overwhelmingly related to these JVs. - Disclosure and audit concerns: - Disclosures of mining contracts are minimal and financial statements of SOEs are hard to come by (example: Gécamines hires an external auditor but releases only the auditor opinion; opinions have been qualified for three years in a row and it is not clear who in government follows up). ### The Mining Code: content, ambiguities, and implementation challenges - The 2002 Mining Code amended in 2018 (and related regulations) is the sector's benchmark legal instrument; the 2018 changes aimed to tighten transparency and accountability, increase the tax burden, and better distribute revenues to provinces and local communities. - Identified ambiguities and weaknesses: - Repudiation of stability clauses of the 2002 Mining Code by the 2018 amendment (immediate application rather than with 10-year time limits) calls into question legal stability and the rule of law. - The tax on excess profits (art. 251 bis) is based on an ill-defined base, its application is partial and largely negotiated case-by-case. - Designation of strategic substances subject to a 10 percent royalty rate is discretionary (s. 7 bis). - Minister's ability to grant operating exemptions in certain provinces is discretionary (s. 220). - The legal and administrative framework of the contribution to community development projects (0.3 percent of turnover - art. 285 g) must be specified to regulate use of funds. - Procedures for evaluating exported goods lead to divergent results as to the amount of foreign currency to be repatriated (art. 269): export license is granted ex ante on a mercurial value while the company relies on actual ex post transaction value. - Implementation challenges: - Management of finances by sub-national governments and implementation of beneficial ownership considerations for suppliers of mining services. - New code requires part of royalties to be paid directly to sub-national governments, raising questions about their capacity to manage markedly increased budgets and controls to prevent expanded rent seeking. - Requirement to disclose beneficial ownership interests is in the code but an implementing decree must define materiality, Politically Exposed Persons (PEPs), and other elements; EITI has been charged to lead drafting of the decree. ### Revenue collection, information flows, and public finance dispersion - Frictions between operators and revenue agencies: - Separation of assessment and collection services for non-tax revenue (DGRAD) generally results in duplicate checks; each service can recover a percentage of revenue and penalties. - Some operators report unrealistic adjustments and VAT refunds remain problematic despite exemption from VAT on imports, due to ad hoc and unpredictable nature of reimbursements by offsetting with other taxes. - Multiple state services (including provincial and local governments) visit mining companies (e.g., Industry Promotion Fund, Cultural Promotion Fund), creating a heavy compliance burden due to multiplicity of collections and administrative processes. - Information circulation and use: - Several companies do not meet reporting obligations, particularly production statistics essential for establishing/verifying tax bases. - Information transmitted to the Ministry of Mines is not automatically shared with the MoF. - The DGI (income tax assessment service) is generally short of information necessary to verify its complex base; the DGRAD has more information on the simpler base of fees but is not in charge of establishing this base. - Multiplicity of revenue collection channels increases dispersion of public funds and complicates management: - Collection services have circuits and bank accounts often foreign to the single Treasury account, increasing dispersion of financial resources. - Significant manipulations are carried out by de facto accountants who do not report their operations to the public accounts, making it impossible to consolidate a sincere accounting of receipts at different management levels (State, communities, Establishments and public enterprises). - The DRC does not have an exhaustive vision of its revenues from the mining sector and the exhaustiveness of EITI reports has not been established. ### State Owned Enterprises (SOEs): risks, performance, and reforms - Corruption and governance risk: - Literature shows SOEs may be particularly exposed to corruption risk; state ownership concentrates in high-risk sectors such as extractive and infrastructure. - Strong and responsible state ownership is essential to mitigate these corruption risks; quality of corporate governance and exercise of ownership rights can address many issues. - Macro importance and fiscal risk: - Book value of the SOE portfolio at the end of 2016 was $16.5 billion, representing close to 50 percent of gross domestic product (GDP). - The DRC Government controls key utilities (electricity, water, transport, national oil and gas company) and the most important sector, mining, remains in hands of state-owned mining companies. - Losses and fiscal impact: - Overall SOE portfolio performance remains poor, led to increasing losses, and remains a high source of fiscal risks: - In 2014, their total losses were around $3 billion. - In 2017 the total was close to $4.4 billion. - Causes include extremely high labor costs (SOEs hire an extremely large number of civil servants and agents d’état), poor service-delivery in key utilities (electricity and water), and large sums (arrears and overall invoices) owed by the government to SOEs. - Perceived lack of integrity underlies inefficiencies: - Linked to (i) lack of professionalism in exercise of state ownership; (ii) risk management and corporate controls that are insufficient or ignored; and (iii) weak enforcement. - Composition and corporatization: - A reform process focused on SOE corporatization and institutional set up has been put in place: - Law No. 08/007 of 7 July 2008 and Law No. 08/010 of 7 July 2008 reformed the legal framework and centralized SOE management. - Of the 51 SOEs, those with a commercial vocation (20) have been transformed into commercial companies; those pursuing a public service mission transformed into public institutions (21) or public services (4); the rest were dissolved and liquidated (6). - Of the 20 commercial SOEs (unipersonal joint-stock companies), seven remain strategic. - The seven strategic SOEs are fully owned by the State and are the country’s largest corporate entities and employers (five of them employ more than five thousand employees). - With the exception of the Société nationale d'électricité (SNEL), they have been loss-making since 2011 with an average aggregate loss of $411 million between 2011 and 2017, with Gécamines and SNCC scoring the lowest on performance. - Small SOEs continue to record losses: EITI reports that the seven smaller extractive SOEs – including MIBA, SOKIMO and SONAHYDROC – had combined losses of close to $50 million in 2016. - Weak urgency and incomplete corporatization: - Poor economic performance has not generated urgency in taking action, partially due to government inertia and the incomplete corporatization process. - As Société Anonime, corporatized SOEs should operate on a commercial footing and deliver commercial results, yet years of losses have not led to changes in management, board composition, or demands for better disclosure. - Many extractive SOEs have de facto stopped production, and it is not fully clear where costs arise given delegation of production to private companies (JVs) via leasing of mining rights; SOEs should be collecting profits from these JVs. ### Institutional arrangements and oversight for SOEs - Institutional evolution: - Law No. 08/010 of 7 July 2008 centralized management of SOEs in the Ministry of Portfolio and created an advisory entity, COPIREP, to deal with SOE reforms. - In 2013 the Conseil Supérieur du Portefeuille (CSP) was given institutional autonomy and placed under the Ministry of Portfolio as a second advisory body in charge of financial oversight, internal controls, and external audit for SOEs. *Source: 1codea2021001 - Box 1. Towards an Integrated Public Finance Reform Strategy.* ### 74. The institutional setting appears sound on paper, yet implementation is far from being ### 1codea2021001 - 74. The institutional setting appears sound on paper, yet implementation is far from being ### Institutional setting and implementation gaps - Advisory entities exist to inform political decisions on SOE reform, but practice is largely top down with limited analytical work feeding into it. - Intended roles: - CSP should provide the key financial information to decide what to reform. - Comité de Pilotage pour la Réforme des Entreprises Publiques (COPIREP) should inform the how to reform and why. - The Ministry of Portfolio should inform cabinet and Government Presidency on what steps to take. - Consequence: Missing the opportunity to filter political decisions via economic and commercial considerations impacts reform quality and the economic performance of the SOE portfolio. ### SOE control and financial oversight — findings - The control structure for SOEs remains at best ineffective. - Two institutions with roles in financial oversight: - The State Auditor: - Established with a 1987 Law but operational only since 2007. - Resource-constrained and lacks financial and operational independence. - Audit of SOE accounts is practically non-existent. - Decentralization effort: a new law introduces 26 offices in 26 provinces, but rollout is far from complete. - Unclear division of labor between local offices and central offices. - Judiciary function exists, but the last time a judge sworn in was thirty-two years ago. - CSP: - In charge of aggregating financial reporting for the SOE portfolio. - Latest published report dates back to 2017; preceding years disclosures have been sporadic. - Quality of financial information and disclosures for SOEs is poor and minimal. - Example: Gécamines hires an external auditor but releases only the auditor opinion; it is not clear which government entity demands full financial statements or follows up on audit opinions, which have been qualified for three years in a row. ### Oversight boundaries and indirect participations - Current oversight and control boundaries do not include indirect participations of the State. - Contracts SOEs enter with other partners (e.g., through creating new companies/JVs) are left outside these boundaries. - The Ministry of Portfolio can oversee SOEs themselves but remains removed from monitoring obligations that generate new companies. ### Legal framework for SOEs — challenges - Three main challenges complicate defining the legal perimeter for SOEs: - The true corporate nature of SOEs. - Norms introduced by the new mining code. - Corporate governance norms that define SOE organization. - Defining true corporate nature: - SOEs in the extractive sector operate de facto as a sectoral cadaster rather than commercial entities. - Historical context: - Before 2002 the mining sector was a monopoly. - The 2002 mining code opened the sector to private companies and effectively transferred mining rights on public domain land to strategic SOEs. - This creates a requirement for private players to get an exploration license with the Cadaster but then negotiate actual permits with the referenced SOE. - Unclear rationales and rules: - Why SOEs should be permit owners of public domain land is unclear. - No clear rules on managing SOE discretion in setting pricing. - Lack of guidance on assigning licenses and closing deals. - Note: according to the 2002 mining code, there is a cap on number of permits that one individual SOE can manage, and Gécamines is in violation of that norm. - 2018 mining code introduces new legal challenges: - Increases uncertainty for private investors. - Introduces aspirational concepts requiring ad hoc decrees for implementation. - New requirements include mandatory disclosures on revenue and joint venture contracts without guidance on who is charged with disclosure, monitoring, or enforcement. - Proposes disclosures of beneficial ownership and creation of a beneficial ownership registry, but leaves multiple details unspecified: - Whose profiles to disclose (individuals and PEPs). - How to disclose (via a form). - How to define materiality. - Which agency will monitor and vet (e.g., Cadaster for domestic or ANAPI for international). - Whether the registry is sectoral or integrated. - Corporate governance perimeter: - COPIREP has developed guidance on corporate governance expectations; SOEs have to an extent implemented them. - OHADA provisions add another layer impacting SOE corporate architecture. - The 2018 mining code adds further requirements while leaving some old 2002 norms alive (e.g., mining rights still in the hands of SOEs). - Professionalism and SOE management practices remain low: - Performance contracts exist but it is unclear how targets and milestones are generated. - Lack of clarity on fit and proper criteria, appointment policy, and staff performance evaluation mechanisms. ### Corruption, disclosure, and initial institutional conditions - Preventing corruption and promoting integrity requires mutually reinforcing approaches from the state and SOEs. - Reliance on state integrity and faithful execution of ownership responsibilities. - Adoption of good SOE practices to signal and support legitimate state ownership. - Corruption and irregular practices damage reputation, affect SOE performance, erode public trust, and worsen investor quality. - Actions needed toward better disclosure and reinforced control functions: - Ministry of Mines has published 145 basic contracts and related documents on natural resources, pertaining specifically to mines and hydrocarbons, for a total of 581 published documents comprising contracts, annexes, and amendments. - Initial conditions needed: - Comprehensive publication of mining, oil, and gas contracts. - Publication of financial statements of SOEs. - Annual aggregate reporting from CSP. - Revitalization of the functions of the State Auditor. - Accountability framework: - Once contracts clarify centers of power and roles in negotiation processes, design an accountability framework to avoid blurring of roles among Government functions. - Strategic decision on SOE operating model: - Government should decide what type of commercial activity is envisioned for SOEs, especially strategic SOEs. - Important given limited public financial resources and potential to mobilize private sector resources for development needs. ### Central Bank (BCC) governance and operations — overview - Section focuses on vulnerabilities in the BCC’s legal framework, governance, and operations. - Objective: safeguard autonomy of the BCC and reduce vulnerabilities through strong governance arrangements, decision-making structure, and checks and balances. A. Legal Framework - Organization and functioning governed by Law no. 18/027 of December 13, 2018. - Law provides autonomy and main objective of ensuring price stability. - Law provides for adoption by the BCC Board of policy rules, internal regulations, and regulatory acts within the BCC’s mandate. - 2018 amendments strengthened de-jure autonomy, governance, accountability, and financial transparency. - Reaffirms institutional and personal autonomy; prohibits government officers and public officials from Board membership. - Establishment of a Board Audit Committee (AC). - Operationalization of amendments remains outstanding. - Further improvements needed: - Enhance procedure and eligibility criteria for appointment of non-executive Board members to protect independence and ensure requisite skills. - Facilitate decision-making to mitigate concentration of executive powers. - Strengthen recapitalization provisions to safeguard financial autonomy. - Implementation of the new Law remains outstanding and should be completed urgently. - BCC operations not yet in compliance on credit to government, governance arrangements, lending operations, and transparency requirements. - BCC should develop a compliance function and strengthen “tone at the top” and Board engagement. B. Governance arrangements and oversight - Decision-making modalities not in line with leading practices; center on the Governor. - Law provides for a Management Committee to assist the Governor, but it is not established; executive decisions are concentrated with the Governor. - Recommendation: establish the Management Committee and a delegation framework approved by the Board to involve senior staff in decision-making. - Board composition and compliance issues: - Law specifies Board: Governor, two Vice-Governors, and eight non-executive directors; six non-executive directors required for a quorum. - Current Board has vacancies for a second Vice-Governor and three non-executive positions, creating legal uncertainty and impairing oversight. - Two current non-executive directors (chairman of a state-owned mining company and a senior tax administration official) contravene incompatibility criteria prohibiting officials of government authorities and public enterprises. - These breaches introduce possible political interference and conflicts of interest. - Oversight arrangements weak: - Board de jure responsible for policy formulation and oversight, but in practice limited compliance with responsibilities. - Lack of approval of policies and internal regulations for reserves management and lending operations. - Absence of evaluation of external and internal audit mechanisms, risk management, and internal control systems. - AC lacks requisite expertise and current oversight modalities are not in line with leading practices. C. Autonomy — key vulnerabilities - Fiscal dominance and monetary financing breach the Law and undermine BCC autonomy. - Government debt of US$1.8 billion at end-December 2018 represents about 60 percent of total assets. - Debt includes unremunerated advances in violation of prohibitions, government securities remunerated below market rates, and past losses pending recognition and securitization by the government. - Advances relate to processing government payments outside the expenditures channel leading to significant overdraft balances. - Certain government loans are guaranteed by the central bank through deposits in foreign currency held at domestic commercial banks as collateral, encumbering foreign official reserves and representing indirect financing of the government. D. Transparency and accountability — findings - External audit: - Deloitte Congo is BCC’s external auditor since 2016; audits conducted in accordance with International Standards on Auditing. - 2018 audit opinion on BCC’s financial statements is unmodified (clean) but highlights breaches of monetary financing prohibitions. - BCC annual audits are delayed; publication of audited financial statements is not systematic due to lags in year-end closing and accounting control deficiencies. - Accounting framework: - BCC has not adopted International Financial Reporting Standards (IFRS). - Key gaps: presentation and disclosure shortcomings and absence of fair value accounting for government debt. - Transition to IFRS is necessary; recommended implementation for FY 2021. - Internal audit: - Falls short of international standards; lacks independence and faces capacity constraints (limited IT audit expertise and lack of professional certifications). - Some Board and AC prerogatives are assumed by the Governor in practice. - Operational vulnerabilities: - Reserves management not subject to proper Board oversight. - Around 38 percent of foreign reserves at end-2018 are deposited with domestic commercial banks that are unrated or rated below investment grade, exposing BCC to substantial credit risk. - BCC should adopt an exit strategy to divest these balances and establish ex ante controls and reserves management reporting to the Board. - Lending to the banking sector does not differentiate standard monetary policy operations from Emergency Liquidity Assistance (ELA). - Lack of Board-approved policies exposes the central bank to financial risks. E. Recommendations (selected and with dates where specified) - Governance - 1. The BCC Board should be fully constituted in accordance with the requirements of the Law (including a second Vice-Governor). The appointments should also address the non-compliance of two current non-executive directors with incompatibility criteria for appointment to the BCC Board (June 2020). - Autonomy - 2. The BCC and the government should enter into an agreement through a Memorandum of Understanding to regularize the outstanding credit to government, including remuneration of the central bank on outstanding government advances (June 2020). - Transparency and Accountability - 3. The BCC should finalize the FY 2019 audit and publish the audited financial statements (June 2020). - 4. The BCC Board should adopt IFRS as the accounting framework and develop an implementation plan for compliance with IFRS for FY 2021 financial statements (i.e., IFRS implemented on January 1, 2021). - 5. The BCC Board should adopt a medium-term plan to divest its domestic investments in the foreign exchange reserves portfolio (October 2020). - 6. The BCC should implement a Board approved governance framework that clearly distinguishes between (i) emergency liquidity assistance (ELA) with collateral requirements, and (ii) other lender of last resort operations for solvency support and related collateral modalities (December 2020). ### Financial sector oversight — developments and challenges - BCC has taken steps to follow-up on weaknesses from the 2013 Basel Core Principle assessment. - Process to adopt risk-based supervision has begun. - With AFRITAC Central support, risk methodological guidance developed for onsite visits and training on supervisory reviews and evaluation processes completed for off-site monitoring. - Regulatory updates: new norms on corporate governance, risk management, licensing criteria, and internal controls passed. - IFRS standards have been adopted and new credit bureaus will soon be established with help from several IFIs. - Implementation challenge: - Ensure harmonized implementation of reforms and capacity to deliver functions effectively under the enhanced framework. - New requirements on risk management, internal control, and corporate governance must be integrated into supervisory risk-based approaches. - Supervisor must develop guidance to assess thematic areas for regulatory compliance, consistency of supervisory processes, and effective risk detection. *Source: IMF staff report text provided in content unit 1codea2021001.* ### 102. To fully deliver on its mandate, the BCC will have to address its current operational ### 1codea2021001 - 102. To fully deliver on its mandate, the BCC will have to address its current operational ### BCC operational challenges, licensing, and integrity - Supervisory vulnerabilities relate to supervisory resources, corrective actions, and accounting and auditing practices; "the allocated budget to supervisory function remains limited." - Unclear whether IFRS standards have been adopted for banks; "IFRS (as of January 2019) appears mandatory for issuers of securities under the OHADA Law requirements." - Instruction N18 of May 2019 introduces: - new conditions for approval of credit institutions, board members, and executives (applies to banks, financial companies and their auditors); - guidelines regarding the outsource of control functions (now subject to BCC approval); - three templates for auditors; - requirement that outsourcing of essential services is subject to prior authorization of the Regulatory and Control Authority; - prior authorization from the BCC for operations that "substantially modify the economic model of the credit institution"; - tightened obligations on shareholders to provide capital or liquidity support in the event of difficulty. - Integrity depends on effectiveness of the newly adopted organic law (2018) and BCC efforts on related party regime and AML monitoring; the council size increased by two but appointments to fill vacancies "have not been completed yet." - Related party transactions (RPT) regime remains narrow and outdated (2013 FSAP highlighted). Consequences: - May critically undermine licensing criteria effectiveness, corporate governance, detection and assessment of banks’ risks, and supervisors’ ability to address risks from related party transactions and exposures. - Ramifications for banking system soundness in DRC, aggravated by lack of AML monitoring. ### Rule of Law — Administration of Justice - Judicial institutions suffer "widespread governance problems and a significant lack of resources." - Market participants report "very little confidence in the judiciary in the DRC"; economic actors prefer negotiations or out-of-court settlements; bribery and political connections used to obtain favourable judgments. - Judiciary under-financed: insufficient offices, computers, training facilities, and a widespread lack of magistrates/judges at every level; Court of Appeals of Kinshasa/Gombe "does not even have a law library"; salaries for judges, magistrates, and clerks are "uncompetitive and inadequate." - Perception-based indicators: - Transparency International’s ‘Global Corruption Barometer – Africa 2019’: nearly 75% of respondents view "most or all people" in the judiciary as corrupt. - 2019 ‘Worldwide Governance Indicators’ — DRC score of 2.88 out of 100 on ‘Rule of Law’. - 2018 Mo Ibrahim Index of African Governance — 'Safety & Rule of Law' score of 19.4 out of 100. - Lack of accountability and oversight of magistrates/judges; Article 151 of the Constitution calls for an independent judiciary but concerns persist about political interference. - Court decisions are largely not published; publication processes are delayed and decentralized. Recommendation: "all court decisions should be published promptly in a single centralized location." - Dissemination of public information (including legislation) is weak; laws published in the official journal "but not with any degree of frequency." ### Rule of Law — Contractual Rights - Enforcement of commercial contracts problematic; World Bank ‘Doing Business 2020’: - DRC ranked 178th out of 190 economies. - Estimated enforcement cost of 80.6% of the contract value. - Average time lag of 610 days. - Reports that judicial outcomes in contractual disputes depend on financial inducements rather than legal merit; judicial manipulation includes garnishment/seizure of bank accounts or assets via inducements. - Specialized commercial courts in eleven primary business centres suffer from backlogs, insufficient judges, delays, and enforcement difficulties. ### Rule of Law — Property Rights - World Bank ‘Doing Business 2020’ — property registration: - DRC ranked 159th out of 190 economies. - Eight procedures required. - Average of 38 days to register property. - Costing over 10% of the value of the property. - Manual property registry unclear; records maintained only in paper format — not scanned or digital; no electronic database for encumbrances or property boundaries. - Notarial oversight weak; notaries act as tax collection agents but often fail to remit tax revenues without consequences. - Conclusion: enforcement and protection of property and contractual rights require a reliable dispute resolution system; current judiciary quality (technical competence and independence) is lacking. ### Market Regulation and Business Environment - Comparative indicators show significant weaknesses; excessive regulation and corruption cited as biggest constraints. - Doing Business and World Economic Forum performance highlights: - Poor scores on protecting minority investor interests: "22 score compared to the regional average of 38.5." - Paying taxes: "40.29 compared with regional average of 57.8." - Trading across borders: "3.5 compared to regional average of 53.6." - Contract enforcement: "33.3 compared with regional average of 49.6." - Reforms and initiatives: - 2012 adoption of OHADA framework; still in process of transposition and integration. - Introduction of single electronic registration system "guichet unique" by ANAPI consolidating agencies (except tax agency) and incorporating ancillary services to RCCM. - Guichet unique: "2 stations in Kinshasa and another 9 across the country" with plans to expand; a by-law maps Guichet unique to 15 appeal courts achieving "60+% geographical coverage." - Piloting of a central registry of collaterals (Equity, BCDC and ROAR pilot). - Efforts to create a Companies House to file annual accounts linked with business registration. - Private sector grievances: - Complex tax and customs system; multiplicity of levies; tax system described as arbitrary. - Informal sector size: 2012 estimate that informal sector represented "88.6 percent of total economy"; formal sector enterprises decreased to "just 0.3 percent by 2019." - Multiplicity of controls by entities (DGI, DGRAD, DGDA, IGF, sectoral ministry, city, etc.) causes "fiscal harassment." - Customs and trade procedures: - No less than 18 levies collected at border crossing: 4 by Customs (pay into general state budget) and 14 for various public bodies; these are not supported by Sydonia World customs system. - GUICE (Integral Single Window for Foreign Trade) reduced document preparation time by "122 hours for exports and by 42 hours for imports"; border compliance time reduced from "219 hours for exports and 252 hours for imports." - GUICE not interconnected with Sydonia World, inducing additional steps and person-to-person interactions. - Discretion and preferential treatment: - High discretion for public officials leads to preferential treatment, conflicts of interest, and connected companies receiving advantages. - Only "14 percent of the value of public sector contracts is granted through competitive bidding." - Mining sector specifics: - SOEs control mining operations; Gécamines holds near-total monopoly on copper/cobalt mining licenses in places. - New mining code (2018) requires "60 percent of export receipts must be repatriated back to DRC while 40 percent can be held in an offshore account." - Articles referenced: Article 264, article 269, Article 274, and amendment of article 220 raise concerns about repatriation, state/central bank purchases of foreign currency at negotiated rates, and ministerial discretion on incentives. - Economic impact of new fiscal regime and de facto taxes and mandatory payments to SOEs may deter beneficial investment. - Regulatory agencies in critical sectors (electricity, telecommunications) malfunction due to missing decrees or unappointed regulators, risking monopolistic entrenchment. ### Anti-Corruption Framework - Corruption indicators: - Transparency International ‘Corruption Perception Index’ 2018: DRC score "20 out of 100." - 2018 Mo Ibrahim Index overall governance score: "32 out of 100." - 2019 Worldwide Governance Indicators: poor scores across six governance dimensions. - International conventions: - DRC acceded to UNCAC on "September 23, 2010" but "has failed to engage in the first cycle of the UNCAC review mechanism." - Ratified SADC protocol on Fighting Corruption in 2007; signed African Union Convention on December 5, 2012 but not ratified. - Institutional gaps: - Existing anti-corruption strategy outdated and "no longer operable." - Enforcement institutions face obstacles: Article 107 constitutional immunity interpreted broadly, impeding PNC and Public Prosecutor investigations into public officials; immunity can only be lifted by National Assembly or Senate — recommendation: "The presumed immunity for public officials, and the manner in which it may be lifted, should be abolished by the DRC as a matter of urgency." - PNC under-resourced; intention to establish anti-corruption taskforce not yet realized; corruption investigations rare (PNC statistics: "2 cases of corruption in 2018, 2 cases in 2017, 3 cases in 2016, 3 cases in 2015, and 7 cases in 2014"). - OSCEP exists but has no investigative or enforcement powers; DRC lacks an independent anti-corruption agency with power to investigate and report to Parliament. - Oversight of public finances: - Court of Auditors (CdC) constrained by lack of support, difficulty obtaining financial statements, financial constraints, single office in Kinshasa, no funding for staff training, understaffed. - IGF under-funded, aging workforce (average staff member "63 years old"), only one office in Kinshasa. - Neither agency has specific mandate to target or investigate corruption; no recent corruption investigations cited. - Asset declaration and transparency: - No asset declaration agency; Article 99 of the Constitution requires President and members of government to provide written declaration to the Constitutional Court, with non-compliance leading to deemed resignation after 30 days — in practice compliance "described to the IMF mission as purely voluntary" and "very few members of government opting to declare their assets"; "no known cases of resignation for non-compliance." ### AML/CFT — Overview and deficiencies - Membership and assessments: - Since 2017, DRC is a member of GABAC (FATF-style regional body); MER scheduled for adoption at "the October 2020 GABAC Plenary" based on onsite assessment in August 2018. - Money laundering predicate crimes: - Corruption identified as one of the main predicate crimes; other predominant proceed-generating crimes include tax and customs fraud and poaching and trafficking in protected wildlife and minerals. - Fragilities exacerbated by informal economy, prevalent use of cash, weak financial inclusion, and ineffective legal/regulatory frameworks including DNFBPs and NPOs. - Legal and institutional gaps: - AML/CFT law: "Loi N° 04/016 du 19 Juillet Portant Lutte Contre le Blanchiment Des Capitaux et le Financement du Terrorisme" enacted July 2004, but framework "does not appear to be compliant with the FATF standards." - CENAREF has received few STRs and only one resulted in prosecution, inconsistent with the country's risk profile. - Legal AML/CFT framework does not sufficiently cover all financial institutions and DNFBPs; sectors outside BCC AML/CFT requirements include insurance, electronic money services, postal financial services, and some professions such as lawyers. - Analysis framework for AML’s role in anticorruption: effectiveness examined across four areas: - a) Preventive Measures - b) Transparency of companies and trusts - c) Criminal justice measures - d) International cooperation - Preventive measures assessment: - Banking sector shows a basic understanding of ML/TF risks and applies due diligence measures, but these remain unsatisfactory. - Microfinance, credit unions, Money or Value Transfer Services businesses "have no understanding of the ML/TF risks" related to clients, products, or services. - BCC has some understanding of ML/TF risks and has prudential supervisory mechanisms, but effectiveness is limited: "Supervision is not risk-based, sanctions are not dissuasive, and most of the DNFBPs are not even regulated." *Source: 1codea2021001 - 102. To fully deliver on its mandate, the BCC will have to address its current operational* ### 145. The legal framework for domestic PEPs is deficient and overall, not implemented. In ### The legal framework for domestic PEPs is deficient and overall, not implemented. ### A. Domestic Politically Exposed Persons (PEPs) — findings - The definition of a PEP does not include senior judicial and military personnel, family members or close associates of PEPs. - There is no requirement to identify the source of funds of a PEP who is the beneficial owner of a customer. - There is no requirement to verify that the beneficial owner of a transaction is a PEP. - Weak supervisory framework provides no incentive to implement the minimal measures in place. - Publication of comprehensive asset declarations for PEPs is currently absent, reducing the ability of financial institutions in DRC and abroad to implement enhanced customer due diligence measures. ### A. Domestic Politically Exposed Persons (PEPs) — policy recommendations - Ensure compliance of the AML/CFT Law and related regulations with the FATF standard. - Strengthen due diligence requirements on domestic PEPs across financial institutions and DNFBPs. - Ensure that the legal framework for effective supervision of these measures is in place. - Publish comprehensive asset declarations for PEPs to assist financial institutions to implement enhanced customer due diligence. - Central bank should strengthen supervision of financial institutions (banks, in particular) by further developing risk-based supervision, including with robust offsite and onsite components focused on risks related to the laundering of proceeds of corruption. ### B. Transparency of Companies and Trusts — findings - Legal persons under DRC law must register with the RCCM, but authorities demonstrate insufficient understanding of ML/TF risks associated with abuse of legal persons and arrangements. - Information on identification of beneficial owners is not available or only obtainable through a tedious process; reporting is not required and there is no mechanism for systematically collecting such information. - DRC does not have a legal framework applicable to trusts because these legal arrangements are not known. - Absence of an explicit prohibition and dissuasive sanctions means foreign trusts may nevertheless operate in the DRC. ### B. Transparency of Companies and Trusts — policy recommendations - Revise the legal framework applicable to legal persons and arrangements to bring it in line with the FATF standard. - Implement a mechanism to ensure that, at a minimum, competent authorities can obtain adequate, accurate and current beneficial ownership information on legal persons and arrangements, in a timely manner. ### C. Criminal Justice Measures — findings - Laundering of proceeds of acts of corruption is not sufficiently investigated and prosecuted. - ML offences are not yet comprehensively criminalized. - No well-defined criminal justice policy proportional to the risks identified and no common strategy for law enforcement authorities to prioritize ML investigations. - Investigative and prosecution authorities handling predicate crimes such as corruption or fraud do not consistently consider the ML element related to proceeds of crime. - CENAREF has submitted several files to the General Prosecutor, yet none resulted in a ML investigation. - Authorities encounter difficulties in ML investigations: legal privileges and immunity, access to information, and lack of internal expertise. - Legal framework for confiscation is not compliant with FATF standards; authorities have not prioritized confiscation of proceeds generated from predicate crimes nor integrated them in investigations. - FOLUCCO, the fund established to combat organized crime and to manage confiscated assets and instruments of crime, is not operational. ### C. Criminal Justice Measures — policy recommendations - Define a policy oriented at suppressing ML and its underlying predicate crimes, focusing on the main risks identified in the NRA. - Support the policy with parallel financial investigations. - Prioritize bringing the confiscation framework into compliance with FATF standards and operationalizing FOLUCCO. ### D. International Cooperation — findings - International cooperation against ML is limited despite the transnational character of corruption. - To date, there has not been any assistance on AML/CFT requested or received. - Mutual legal assistance (MLA) and extradition are provided for in national legislation, in international conventions ratified, and in bilateral agreements, but are rarely used due to lack of formal mechanisms and procedures. - DRC does not have a centralized case management system for foreign requests, resulting in delays. - Other forms of cooperation are used only in a limited manner: CENAREF shares information with a limited number of foreign financial intelligence units. - Other competent authorities such as the DGDA and the BCC have cooperation channels with foreign authorities, but exchanges specifically on ML/TF are limited, if any. - There is no formal mechanism for exchanging information on beneficial ownership. ### D. International Cooperation — policy recommendations - Strengthen capacity of competent authorities to make better use of international cooperation to tackle financial crime. - Develop a procedural manual for international cooperation to clarify processes, priorities, timeframes and levels of confidentiality for MLA requests. - Establish a dedicated unit for international cooperation to track and manage mutual legal assistance requests, including those related to ML/TF and corruption. - Build on existing cooperation: CENAREF concluded a dozen cooperation agreements with other financial intelligence counterparts. ### Annex — government entities and other participants listed as consulted - Government Entities: Ministry of Finance; Ministry of Justice; Central Bank of the Republic of Congo; Public Prosecutor’s Office of the Republic; Congolese National Police; National Investment Promotion Agency; Court of Auditors; Inspectorate General of Finances; Judiciary; Superior Council of Magistrates; Court of Appeals of Kinshasa/Gombe; Commercial Court of Kinshasa. - International Organizations: World Bank. - Foreign Governments: Embassy of the United States of America, Kinshasa; Embassy of the Netherlands, Kinshasa; Embassy of France, Kinshasa; Embassy of Belgium, Kinshasa; United Kingdom’s Department for International Development (DFID), Kinshasa. - Civil society and business: A range of Nongovernmental Organizations based in Kinshasa and Lubumbashi; Congolese Banking Association; American Chamber of Commerce, Kinshasa; Company Registration Service; multiple private law firms and notaries headquartered in Kinshasa. *Source: IMF diagnostic report excerpt.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1codea2021001.pdf_