Transparency of the Regulatory System
Parliament is the country’s supreme legislative authority. Laws are enacted by Parliament and signed by the President. The Judiciary interprets and applies the laws to ensure impartial justice and provides a mechanism for dispute resolution. However, the regulatory system is not fully consistent with international norms. Laws and regulations are developed at the national level, and the Constitution requires publication of proposed laws and regulations in a government journal, the Gazette, for 21 days.
Series of legislative reforms have been carried out since the first trade policy review in 2005 to enhance a conducive business environment and attract FDI. These include the Business Registration Act, the Investment and Export Promotion Agency Act, which established the Sierra Leone Investment and Export Promotion Agency (SLIEPA), the Anti-Corruption Act, the Bankruptcy Act, the Companies Act, the Goods and Services Tax Act, the Customs Administration Act, the Payment Systems Act, the Debt Management Act and several Finance Acts, to name a few. To strengthen the legal, regulatory, and institutional frameworks, Sierra Leone established the fast-track commercial court, the Credit Reference Bureau, the Corporate Affairs Commission, revised the legislation of company activities and developed the Local Content Policy.
Also, Sierra Leone has taken steps to promote and improve regulatory transparency. The Right to Access Information Commission was established in 2014 to make government records information available to the public and imposes a penalty for failure to make information available. Sierra Leone joined the Open Government Partnership (OGP) in 2014, an initiative that empowers citizens to fight corruption, and promotes transparent and accountable governance. The Audit Service Sierra Leone, headed by an Auditor General, was established by the Audit Service Act of 1998 and further strengthened by the Audit Service Act of 2014, to carry out audits of public accounts of all public offices, including statutory corporations and organizations set up partly or wholly out of public funds. Sierra Leone joined the Extractive Industries Transparency Initiative (EITI) in 2008, became compliant with EITI rules in 2014, made progress in implementing EITI Standards, and was required to undertake corrective actions before the second validation due in December 2020. The Public Financial Management Act of 2016 reformed the budget process and improved transparency in the expenditure of public funds, while the Fiscal Management and Control Act of 2017 directed government ministries, departments, and agencies (MDAs) to transfer all revenues into the Treasury Single Account, domestically referred to the Consolidated Revenue Fund (CRF), which was fully complied within 2018 on the executive order of President Maada Bio.
International Regulatory Considerations
Sierra Leone joined the General Agreement of Tariff and Trade (GATT) in 1961 and the World Trade Organization (WTO) in 1995. Sierra Leone is committed to the multilateral trading system and has not notified the WTO of any measures that are inconsistent with the WTO’s Trade-Related Investment Measures (TRIMs) obligations. It acceded to the Kyoto Protocol in 2006 and the International Convention on the Simplification and Harmonization of Customs Procedures otherwise referred to as the Revised Kyoto Convention in 2015. It became a contracting party to the International Convention on the Harmonized Commodity Description and Coding System (HS Convention) in 2015. It replaced its pre-shipment inspection with a destination inspection in 2009 and notified the WTO of the Agreement on Trade facilitation in May 2017. The Customs Act of 2011 upholds the WTO Customs Valuation Agreement which prohibits the use of arbitrary, or fictitious values, but continues, in practice, to use these values. It has however not notified the WTO of its sanitary and phytosanitary legislation required for the international movement of any plant materials or products or any state-trading activity.
Sierra Leone is neither a signatory nor an observer to any of the plurilateral agreements concluded under the WTO, but being firmly committed to its obligations, it established a mission to the WTO in 2011. It had ratified six multilateral investment agreements, including the International Center for Settlement of Investment Disputes (ICSID) Convention and the Convention establishing the Multilateral Investment Guarantee Agency (MIGA) so that foreign investments in Sierra Leone are covered against non-commercial risks such as currency transfer risks, expropriation risks, risks of war and civil disturbance, and repudiation risk.
Legal System and Judicial Independence
The legal system is derived from the English common law system, but outside of the capital, Freetown, local courts apply customary law to many disputes. The courts provide a venue to enforce property and contract rights. The country does not have a consolidated written commercial or contractual law, and disparate pieces of legislation sometimes lead to the uneven treatment of commercial disputes.
The Superior Court of Judicature consists of the Supreme Court, the Court of Appeal, and the High Court while the lower courts consist of the magistrate court and the local courts. In 2010, Sierra Leone created a Fast-Track Commercial Court to reduce the duration of commercial cases to a minimum of about six months. In 2017, Sierra Leone hosted a commercial law summit to address gaps in the justice system, resulting in concrete recommendations in key areas, including arbitration, anti-corruption and bribery, public-private partnerships, and reform of the court process. There is now a draft Arbitration Bill which when passed into law will bring arbitration proceedings in Sierra Leone up to international standards.
Foreign investors have equal access to the judicial system, which in practice, is slow and often subject to financial and political influence. However, Sierra Leonean courts may acknowledge foreign judgment from specific jurisdictions with reciprocal enforcement arrangements with Ghana, Nigeria, Guinea, and the Gambia. Generally, Sierra Leonean courts do not apply foreign law, but foreign judgment can be enforced when registered with the high court, though the registration may be refused when enforcement is contrary to public policy.
On depositing its instrument for accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), Sierra Leone became the 166th state party to the convention which will come into force in January 2021. Recommended during the inaugural Commercial Law Summit of May 2017, the accession will promote FDI by resolving disputes by arbitration without interference from local courts and will enforce arbitral awards consistently and predictably.
Laws and Regulations on Foreign Direct Investment
The Companies Act of 2009, the Registration of Business Act of 2007, and their subsequent amendments are the main laws governing the registration of all businesses before commencing operations. The Corporate Affairs Commission (CAC) deals with the incorporation of companies, while the Office of the Administrator and Registrar General (OARG) deals with sole proprietorships and partnerships with the process streamlined into a stop-shop.
Sierra Leonean law generally ensures that foreign investors may compete on the same terms as domestic firms. The Investment Promotion Act 2004 protects foreign entities from discriminatory treatment. The law creates incentives, customs exemptions, provides for investors to freely repatriate proceeds and remittances, and protects against expropriation without prompt and adequate compensation. The law establishes a dispute settlement framework that allows investors to submit disputes to arbitration under the rules of procedure of the UN Commission on International Trade Laws (UNCITRAL).
Sierra Leonean authorities do not screen, review, or approve foreign direct investments. Companies must register to do business in Sierra Leone, and there are no reports that the registration process has blocked investments or discriminated against investors. In the case of investment guarantees, the government established certain procedures with the U.S. government in agreements signed on December 28, 1962, and November 13, 1963, whereby Sierra Leone authorities approve external investment guarantees in Sierra Leone. Additional information about the laws and regulations applicable to foreign investments is available on the website of SLIEPA at http://sliepa.org/ .
Competition and Anti-Trust Laws
Sierra Leone does not have competition law. The European Union (EU) and the United Nations Conference on Trade and Development (UNCTAD) have supported the Ministry of Trade and Industry’s attempt to develop a competition policy, as this ministry oversees the regulation of anti-competitive practices. A competition policy and a consumer protection policy have been approved by the cabinet, but parliament is yet adopted the relevant legislation.
Expropriation and Compensation
There is no history of expropriation in Sierra Leone, though the government has threatened such action against a foreign investor following a commercial dispute under arbitration in an international tribunal. The Constitution authorizes the government to expropriate property only when it is necessary in the interests of national defense, public safety, order, morality, town and country planning, or the public benefit or welfare. In such cases, the Constitution guarantees the prompt payment of adequate compensation, with a right of access to a court or another independent authority to consider legality, determine the amount of compensation, and ensure prompt payment.
ICSID and New York Convention
Sierra Leone became a party to the International Convention on the Settlement of Investment Dispute (ICSID) in 1966 to arbitrate investment disputes and enforce ICSID awards. In November 2018, Parliament approved a motion authorizing Sierra Leone to accede to the convention and to domesticate the provisions in its legal system. While it has been ratified in parliament, domestication is still pending. Sierra Leone deposited its instrument of accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) to become the 166th state party to the 62-year-old Convention in January 2021. Also, Section 13 of the Arbitration Act 1960 allows foreign arbitral awards to be registered in Sierra Leonean courts and enforced in the same manner as a domestic judgment or court order. However, registration of foreign arbitral awards is not automatic but instead left to the discretion of the presiding judge.
Investor-State Dispute Settlement
Investment disputes in Sierra Leone can take a long time to resolve, given the slow pace of bureaucracy, and substantial court backlogs. In 2016, the Embassy received multiple reports of cases where U.S. companies experienced challenges in asserting their investment interests. One company reported that the previous government denied regulatory approval for the firm’s acquisition of a Sierra Leonean entity in part because preference should be given to Sierra Leonean buyers. However, in 2018, the new administration overturned the decision and granted regulatory approval for the U.S. company to take over. The cancellation of two iron ore mining company licenses over disputed royalty payments and non-compliance with mining laws has resulted in the referral of the government to international arbitration. However, the government had continuously failed to comply with arbitral rulings.
International Commercial Arbitration and Foreign Courts
The Arbitration Act 1960 allows investors to arbitrate disputes, but the procedures outlined in the law are outdated and not in compliance with international standards. The country does not have a central arbitral institution, and instead, arbitration is conducted on an ad hoc basis, including through pre-trial settlement conferences and alternative dispute resolution mechanisms before the Commercial and Admiralty Division of the High Court. The Investment Promotion Act 2004 allows investment disputes to be referred to arbitration following UNCITRAL procedures or the framework of any applicable bilateral or multilateral investment agreement. Judgments of foreign courts can be enforced under the Foreign Judgments (Reciprocal Enforcement) Act 1960, provided the country has a bilateral or reciprocal enforcement treaty with Sierra Leone. The Public-Private Partnership Act, 2014 also provides for international arbitration in Sierra Leone.
The Bankruptcy Act 2009 establishes a process of bankruptcy for individuals and companies. Bankruptcy is a civil matter, but it may disqualify an individual from holding certain elected and public offices and from practicing certain professions. The Bankruptcy Act 2009 also encourages and facilitates reorganization as an alternative to liquidation. The World Bank ranked Sierra Leone 162, with a score of 24.7, in the ease of resolving insolvency in 2020.
Following the passing of a Credit Reference Act in 2011, Sierra Leone established a Credit Reference Bureau within the Bank of Sierra Leone, mandating all financial institutions to pass all information regarding loan applications for credit history checks. The credit history checks will detail all outstanding loans, when and where a loan was taken, and the repayment history guiding financial institutions in their loan decision. The Bureau now operates a digital identification system to control credit information and ensure citizens have secure and complete ownership of their data and information thereby transforming the financial inclusion landscape.