Zim gets tough on laundering
2005-04-17 20:01
Special Report
A classical music presenter for the BBC has been arrested and is in custody in Zimbabwe.
Harare - Zimbabwe's stricken economy, once a haven for illicit currency transactions, is looking to tighten the noose on endemic money laundering.
Zimbabwe has enacted a tough law that compels lawyers to act as whistleblowers on their clients by recording, disclosing and reporting information about clients suspected of money laundering in trust accounts they hold on behalf of their clients.
The Reserve Bank of Zimbabwe says money laundering has
become rampant in the country due to absence of regulations
and corruption within the financial sector.
Lawyers in the country say the Bank Use Promotion and Suppression of Money Laundering Act compromises them in upholding legal ethics and confidentiality between lawyers and their clients.
Fact is, lax laws and poor foreign currency inflows have seen
the country become a major gateway for money laundering in
the region.
According to a 2002 study by the National Economic Consultative Forum (NECF), a Zimbabwean think-tank, money laundering cost the country US$1bn over a six-year period.
The same forum predicted that the country was losing at least
US$1m every month to this criminal behaviour, raising alarm
about the country's anti-money laundering laws.
Southern Africa haven for launderers
Money laundering has been prevalent in various forms in
Southern Africa, notably in the Democratic Republic of Congo,
Malawi, South Africa, Botswana and Zimbabwe, for some time.
However, the assault on Zimbabwe started with the currency
collapse in 1997, which gave way to trade on the parallel market.
"The inclination of retail businesses in many countries to conduct transactions in cash facilitates the local laundering of funds.
"It is convenient for criminals to purchase commodities without
fear that the source of the cash will be detected," noted Charles
Goredema of the South Africa-based Institute of Security Studies
in a report on money laundering in the region.
Large amounts of cash, some of which are derived from drug
trafficking, regularly change hands in the commercial districts
of Mozambique and Zimbabwe.
Until the Zimbabwean government banned bureaux de change in November 2002, illegal forex trade was convenient and difficult to trace.
It meant that anyone within the region could move money into
Zimbabwe and out without complications. The situation compelled
the US to watch Zimbabwe in case it was used to money
to fund terrorist activities.
Asset management route
Asset management companies sprouted in 2002 and, with
no law binding their operations, they dealt in forex currency.
They soon became targets of regional and international criminals
who moved funds into the country under the guise of investments.
They also enabled many Zimbabweans to externalise foreign
currency.
According to the NECF, at least US$1bn was externalised
by Zimbabweans between 2002 and 2003. Their speculative
actions also drove trade on the Zimbabwe Stock Exchange
to new heights.
In 2001, three commercial banks were fined by the Reserve
Bank for dealing outside the controlled exchange rates but the
bottom fell when Gideon Gono took over as governor of the central
bank.
His tough stance led to the closure of one of the largest
asset management companies, ENG Capital, which left many
companies exposed to the tune of Z$115bn.
The fall-out has led to the closure of three other commercial
banks, Trust Bank, Barbican Bank and Royal Bank, which were
later amalgamated into the Zimbabwe Allied Banking Group
to avoid a total collapse of the sector and to safeguard investors funds.
Criminals flee country
Several others are still under curatorship and could be forced
into the ZABG should they fail to recover. Many of the owners
of the banks fled the country to lead a life of comfort overseas
from their externalised funds.
In the period between 2002 and 2004, real estate companies
preferred clients to pay in foreign currency, with the funds
deposited in offshore accounts.
"Only one country in the sub-region, South Africa, featured
among the likely destinations of funds thus externalised. Others
were the United States, the United Kingdom and Canada.
"It appeared that in the destination countries, the foreign currency payments were made through the banking system," said Goredema.
"It is not always practical or prudent to completely outflank
the banking system in an outgoing laundering scheme. Some
funds are inevitably transferred through intermediaries in the
financial services.
"A proportion of financial services intermediaries may facilitate transfer of illicit funds unwittingly, but some
will do so knowingly, even as principal beneficiaries," he said.
Government part of conspiracy
While lawyers in Zimbabwe fight against the new law, the government feel that they have been part of a conspiracy to launder money on behalf of their clients.
In one case, the late Roger Boka, a local businessman who pioneered the first indigenous merchant bank in the country, opened and operated several personal accounts at foreign banks in Botswana, South Africa, the UK, the US, Germany,
Luxembourg and France.
The transactions were either carried out personally and sometimes
through his lawyer, amounting to at least US$21m.
The lawyer, a senior partner in a law firm in Harare, was a director on the board of the bank and a signatory to the bank's account at the Zimbabwe Banking Corporation.
The firm acted as corporate secretaries for the bank and as legal advisors to both the bank and the Boka Group of Companies. The main business specialities of the group were tobacco and gold marketing.
The lawyer disappeared from Zimbabwe shortly after the
death of Boka, by which time he had already been charged with
violating the Prevention of Corruption Act and the Companies
Act.
It was later discovered that the lawyer also operated a foreign
bank account in England. None of the foreign funds appear
to have been repatriated.
Police trained to spot laundering
To help fight money laundering, the Zimbabwe Republic
Police is now offering training in basic accounting for its of-
ficers.
The RBZ also plans to set up a Financial Intelligence Unit to monitor financial dealings of all financial institutions. It
will monitor suspicious transaction and coordinate anti-money
laundering efforts in the country.
Under the proposed guidelines, financial institutions would be
required to appoint a money laundering reporting officer whose
duty would be to identify customers who could be involved in
money laundering.
The banks would be prohibited from allowing the opening of
accounts via the internet or through the postal service.
In addition, banks whose customers want to engage in correspondent banking would be required to locate the respondent
bank and the bank's regulations, which should include anti-money
laundering measures.
The purpose of the account and the identity of the third party using the services would also be required in correspondent banking.
- Business in Africa