Syntax that can produce this error:

pkzipc -add -smartkey=smartcrypt-ugDk5fa0SLVpNFYyruW2mGxQP9XH6YVF-MA_4_K71bfH3GFAT8HfgeMci5Rebfl3uDufluQDwyut62dY8= sc.zip testfile.txt
CODE 
Smartcrypt(TM) Version 15 for Windows Licensed Version
Portions copyright (C) 1989-2016 PKWARE, Inc.  All Rights Reserved.
Reg. U.S. Pat. and Tm. Off.  Patent No. 5,051,745  7,793,099  7,844,579
7,890,465  7,895,434;  Other patents pending
* Strongly encrypting files with a passphrase using AES (256-bit)
* Using UTF-8 file names and comments
* Using default compression method
* Using fastest available AES algorithm
Creating .ZIP: sc.zip
PKZIP: (E89) Policy requires the archive to be encrypted
CODE

Resolution(s)

  1. If specifying -smartkey="accounting"  check capitilization ( -smartkey="Accounting" )
  2. If you are specifying a key, use -smartkey=urn=<key>