Second lockdown hampers investigation into fronting

The Regional Trade and Industry Office in Phuentsholing is investigating the existence of the trade licenses’ leasing, subleasing and hiring to another person to operate one’s license in Phuentsholing and Samtse towns.

However, the investigation has been affected by the second lockdown though it has resumed, according to the economic affairs ministry.

“This would give us some insight on the fronting issue as the possible existence of fronting, particularly in the trading sector could be understood more from the pandemic and closure of borders,” said the economic affairs minister, Loknath Sharma.

Additionally, he said, there is no comprehensive study conducted on fronting, however, the ministry has been strictly monitoring and regulating the different activities of the business to ensure no fronting takes place.

In the recent fourth session of the third parliament, the joint sitting adopted a clause, “A defendant will be guilty of an offence of fronting if the defendant leases or sub-leases, hire or otherwise permits another person to use or operate one’s license unless otherwise permitted by-laws or policies” of the Penal Code of Bhutan 2019.

During the 23rd session of the National Council (NC), the Economic Affairs Committee of the NC reported a total of 205 fronting cases till April in 2019 in four major towns of Phuentsholing, Gelephu, Samdrup Jongkhar, and Mongar citing sources from the economic affairs ministry. Phuentsholing saw the highest with 161 cases.

Lyonpo said fronting is a very serious hindrance to the growth of business and economy of the country as the license holders gain small financial benefits without investment or engaging oneself in the business, losing the opportunity to practice the trade and art.

“It is unhealthy as a proper accounted flow of accounts may not be ascertained and thus the nation loses revenue and taxes,” said Lyonpo.

Additionally, Lyonpo said fronting is not legal and ethical business, “Fronting could happen in any sector and between anyone for quick gains,” he added.

“Fronting could also be a threat to national security and result in loss of job opportunities for  enterprising youths,” said Lyonpo. Additionally, he said it could also lead to out-flow of resources and possible revenue leakage encouraging illegal activities.

According to Lyonpo, fronting could be looked through the lenses of corruption and collusions as well as hampering fair and equal opportunities through flow of capital and money.

“Fronting is a serious offence and both the fronter and lessee are liable to the new provision under the Penal Code, and if license holders are not mindful and aware of such provisions, it would catch them out of the blue,” he added.

However, Lyonpo said the ministry would create and sensitize on the new provisions, and let people know about it. “The businesses would not be hampered and economic activities will continue as normal.”

Additionally, he said such provisions would help curb illegal attempts and provide an opportunity to those who are genuinely interested in business.

Lyonpo also said it is important to ensure free and fair business through ethical business practices and any such hindrances and illegal flow of money needs to be addressed as the business opportunity grows.

One of the difficulties in proving the fronting case, Lyonpo said was that many fronting cases operate under the guise of employee or relationship and the ministry would find it difficult to get access to documents or their arrangement. The other one, Lyonpo said, the monitoring would be a serious challenge as it is a continuous process, and there are many stakeholders involved.

“Fronting shall not be an excuse and must be avoided at all circumstances as getting business licenses and running a business is not restricted to anyone,” said Lyonpo.

However, Lyonpo said many small license holders who very often do not know how to apply or skip the process find it easier to operate someone else’s existing license.

Given the ill effects of fronting, Lyonpo asks people to support the drive to curb the fronting issue.  Economic ministry’s statistics show 13,666 micro-trade license holders, 9,460 retail, 868 wholesale, 662 hotel, 190 bakery units, 1,945 contracts, 425 large and medium construction industries, 283 large and medium production and manufacturing industries, 437 service industries, 819 (611 hardware and 208 electronics) and 1,614 garment shops.

Thukten Zangpo from Thimphu