20 January 2009: Tracking Proceeds of Crime in Uganda, Malawi and Zimbabwe

Law enforcement agencies and financial institutions in Uganda and neighbouring countries have long decried the absence of basic laws to criminalise money laundering. Speaking last year during the presentation of Uganda’s budget for 2008/2009, the Minister of Finance, Planning and Economic Development of Uganda expressed his government’s approval in principle of the draft Anti-Money Laundering Bill. Further consultations with stakeholders were however, necessary before the Bill could be submitted to Parliament. On the assumption that there will be consultations soon, the Bill will be tabled in Parliament during the course of this year. It was in fact first tabled in Parliament in 2003 but has fared rather badly ever since, casting doubt on government commitment to lead on combating economic crime and corruption

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If the Bill becomes reality, anti-money laundering legislation in Uganda is expected to impact on the incidence of corruption and financial crime. Optimists expect that the law will eventually enhance corporate governance and accountability, both of which are areas in which there has been precious little progress.

Developments in Malawi after the country adopted anti-money laundering laws may hold some lessons for Uganda. President Bingu wa Mutharika assented to the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act on 22 August 2006. On that date money laundering became a criminal offence. The Act continues to change the face and operations of the financial sector in the country. One of its consequences was the introduction of prudential measures to help combat money laundering and financing of terrorist activities. In terms of the Act, financial institutions are required to meet certain obligations, or risk prosecution. The obligations include:

Verification of the customer’s identity and nature of business
Documentation of transactions
Establishment and maintenance of transaction records
Monitoring of transactions
Reporting of suspicious transactions
Establishment of internal reporting procedures

However, implementing the Act is easier said than done. The entire regulatory regime in Malawi has to grapple with the problem of implementing customer due diligence in the absence of a national identification system. Uganda will face the same problem, as it also does not have such a system. Financial institutions in Malawi have had to rely on a disparate range of documents such as drivers’ licences and passports as proof of identity. It goes without saying that such documents are only held by a small proportion of the economically active population. In order not to exclude too many potential customers, Malawian banks, with the agreement of the regulatory central bank, had to make compromises and accept less reliable documentation. Customer identification in Uganda at the moment is done through the use of voters’ cards, drivers’ licences and passports.

Malawi is also grappling with the continued absence of a director for its Financial Intelligent Unit (FIU). The FIU was created in August 2007. The President, with the approval of the parliamentary Public Appointments Committee, appoints the director. To date the office of director remains vacant, the first appointee of the office having been rejected by members of Parliament. It is important for a director to be appointed if the FIU is to generate the respect that it needs to be effective. Currently the FIU is being run by a Deputy Director who is on secondment from the Reserve Bank of Malawi, assisted by a legal officer. In 2009 Malawi expects to improve the lines of communication with financial institutions to prevent money laundering, and enhance its training programmes.

A worst-case scenario in Southern Africa is certainly Zimbabwe. The main statute relating to the control of money laundering in Zimbabwe is the Bank Use Promotion and Suppression of Money Laundering Act. The legislation is supported by regulations that are issued by the Central Bank from time to time. The main thrust of the legislation and regulations is to encourage the use of the banking system so that there is an audit trail in all transactions, thereby making it easier to discern money-laundering misdemeanours. To this end, all proceeds from business should be banked by close of business following the day of receipt. As a result, it is illegal to retain cash above a certain threshold.

However, the Zimbabwean economy continues to deteriorate, with year on year inflation as of December 2008 estimated to be in excess of 231 million %. Unconventional business (some of which involves illegal activities) tends to yield higher returns in a hyperinflationary environment. This is not surprising given that salaries are way below the poverty datum line yet some employees can still support and enjoy a lifestyle that is far beyond their legal earnings. As a result, corruption has taken centre stage. Money laundering methodologies tend to mirror what is happening in the economy and are centred on cash shortages, smuggling of minerals and illegal foreign currency transactions. With inflation levels that are so high, a lot of financial transactions get obscured by inflation itself. As an illustration, Z$5 billion was worth US$1 000 on 1 January 2008 and on 30 June 2008, it was worth US$1. This means that if somebody was owed Z$5 million at the beginning of the year, it would not be worth pursuing. If a company owes tax amounting to the equivalent of US$ 1000 at the beginning of the year, the amount in Zimbabwean dollars would be astronomical and not be worth the paper it is written on six months down the line.

Zimbabwe has a well-developed legislative infrastructure to control money laundering. However, there is virtually no enforcement because of the prevailing economic environment, which will simply not support it. The realities on the ground leave individuals and corporate companies with no choice but to participate in illegal markets for commodities, especially foreign exchange. This is likely to continue, if not escalate in 2009. It is increasingly difficult to apply the term money laundering in a context in which transgressions outnumber lawful dealings.

Thobani Matheza: Researcher, Organized Crime and Money Laundering Programme, ISS Cape Town