At the 11th United Nations Congress on Crime Prevention and Criminal Justice held in Bangkok, Thailand in April 2005, it emerged that economic crime, including money laundering continues to be topical all over the world. Extensive discussions were held in plenary sessions and specialised workshops.

One of the recurrent issues was whether there should be a new international convention against money laundering. Proponents of the idea contended that such a development would be a natural evolution following the adoption of the Global Convention Against Corruption in 2003. It was suggested that the framework for combating of money laundering in the United Nations Convention Against Transnational Organised Crime (UNTOC) was not sufficient, and that in any event, that framework did not take into account the peculiar challenges faced by developing, cash-based economies. Furthermore, little attention was paid to asset repatriation in the UNTOC, resulting in enormous difficulties for countries seeking large scale asset repatriation, such as Nigeria.

Opponents of a new convention pointed to the disappointing and limited implementation of the UNTOC, specifically its anti-money laundering provisions, to support the argument that a new convention would not improve the situation. They maintained that the UNTOC provisions were adequate, and if implemented, there would be measurable progress against money laundering. At the conclusion of the Congress, it was resolved that a separate Convention against money laundering was not required.

Over the last six months the connection between money laundering and investment, trade and commercial malpractices has continued to manifest itself. Some of the classic intersections are reported in this edition of the Monitor. It covers the involvement of financial institutions in their role both as perpetrators of and as instruments in money laundering schemes. The glaring acts of misconduct that were revealed in the wake of the clampdown by the Reserve Bank of Zimbabwe on speculative activities demonstrate the potential of the financial sector to commit money laundering on a grand scale.

<<< 11th United Nations Congress on Crime Prevention and Criminal Justice >>>

INTRODUCTION

One of the primary aims of the Monitor is to quantify the nature and extent of money laundering activity in the sub-region. In undertaking this exercise, the Monitor attempts to identify the indicative factors (see link below) by which predisposition to money laundering and incidence of money laundering activities can be identified. The importance of these indicative factors lies in their usefulness in the detection of the incidence of money laundering in respect of internally derived proceeds; incoming money laundering, and outgoing money laundering. Internal money laundering occurs where proceeds or other assets laundered within a country are derived from criminal activities carried out within that country. Where such proceeds or assets derive from crimes committed outside the country and are introduced into the country, this constitutes incoming money laundering. In outgoing money laundering, the proceeds or assets produced by illicit activities are laundered by being transmitted to foreign countries.


The Institute for Security Studies regards it as important to identify and constantly review the nature and extent of money laundering (ML) activity occurring in the region today. This exercise has to rely on the selection of factors indicating the incidence of ML. It goes without saying that it can only be done if there is access to reliable data.

It is important to make a difference between factors that indicate the vulnerability of a country or institution to money laundering, and factors that indicate the actual occurrence of money laundering. In the Monitor, the inclination is to highlight factors of the latter kind. We define money laundering indicators as tangible evidential manifestations of money laundering, whether attempted or achieved. In drawing up a list of indicators, we have tried as much as possible to select factors that appear to be of common relevance and applicability.

The Monitor uses money laundering indicators selected from a range relied on by financial intelligence units. Criteria for selection are:

--- Relevance
--- Whether the indicator can be objectively verified
--- Whether it is succinct

Studies by the ISS to date have shown that in the region, money laundering occurs within the financial sector as well as outside it. The financial sector, even in unsophisticated parts of the region, is made up of multiple players, operating in different sub-sectors and different institutions. The non-financial sector is even broader, comprising in the formal economy, various kinds of professionals, and actors in the informal economy. It is evident that indicators of money laundering are not necessarily the same across the board.

The Monitor classifies the indicative factors according to their area of relevance. The first category is in terms of whether they relate to internal money laundering, and the second, whether they pertain to transnational money laundering.

<<< Money Laundering Indicators >>>

ZIMBABWE: ROYAL BANK FRAUD

Two directors of Royal Bank are accused of defrauding the bank of millions of dollars. The Bank was placed under the management of a curator on 4 August 2004 due to imprudent banking practices. A report by the curator pointed out the granting of fraudulent insider loans in contravention of existing procedures, the granting of large overdrafts and fictitious credit transfers to cover the irregular advances. The Curator`s report revealed that the two directors beneficially owned and controlled two companies, Gemtre Investments and Covenant Investments, which had current accounts with the bank. One account is listed as belonging to the two companies.

It is alleged that on 15 December 2003, one of the directors of the two companies facilitated the granting of an unsecured loan of Z$700 million (USD116, 666.67) contrary to bank policy to Gemtre Investments. The loan was granted without requisite board approval and without the director disclosing his interest in the company. A similar amount was granted to the other director, resulting in the two company accounts being overdrawn by Z$5,7 billion (USD950 million) and Z$1,9 billion (USD316, 666 666.70) respectively. The two loans were not serviced for some time, however, in order to give the impression that payments had been made, a fictitious credit transfer of $8 624 455 292 (USD1, 437,409.22) was generated and written off as bad debt. $6 198 427 554, 77 (USD1, 033,071.26) and $2 426 027 737, 87 (USD404, 337.96) were credited to Gemtre and Covenant respectively.

The curator further claimed that $587 million (USD97, 833.33) was transferred from the Gemtre account into a director`s account also held at Royal Bank on 18 February 2004 for the purposes of settling personal accounts. Further deposits of $2, 65 billion (USD441, 666 666.70) and $1, 3 billion (USD216, 666 666.70) were made into the Gemtre account ostensibly as a refund for the purchase of a Barclays bank branch in Bulawayo, Zimbabwe`s second largest city.

The curator also pointed out that an amount of $8 837 113 094, 38 (USD 1, 472 852.18) that was reflected as a system error in the account of Finstreal Asset Management, had actually been passed with the corresponding credits being credited to the Gemtre and Covenant accounts in order to clear outstanding overdrafts.

The Royal Bank fraud is illustrative of the financial crisis that besieged Zimbabwean banks in 2003/4. It is alleged that at least Z$600 billion (USD100 million) disappeared in Zimbabwe`s bank crisis. Management in the implicated financial institutions misappropriated depositors` funds by engaging in non-core bank business to the detriment of depositors. Reports also indicate that unscrupulous managers of the said banks either externalised foreign currency or awarded themselves substantial non-performing loans. The fraud is also indicative of internal money laundering within the financial sector in that there was use of shell companies, that is Gemtre and Covenant, and the opening of accounts in the names of the two companies, which accounts largely lay dormant except for fraudulent transactions the purpose of which was to confuse the money trail. The granting of bogus loans and fictitious credit transfers are other indicative factors that money was being laundered, particularly as these amounts would be written off as bad debts.

The examples listed below also underscore the fact that cash is not the only commodity that is subject to laundering, as it can be converted into other valuable assets in the laundering process.

$440 Billion Scandal At Zimbabwe`s Time Bank

Time Bank was placed under curatorship on the grounds that its liabilities far exceeded its assets as a result of the Bank having gone into a property-financing project.

Time Bank allegedly started a housing scheme in October 2004 that called for investors to place between $10 million (USD1, 666.67) and $20 million (USD3, 333.33) with the bank. This would then entitle the investors to own a residential stand within a period of six months. In an article in the Standard Newspaper of 28 November 2004, it was reported that a total of $114 billion was paid to a single customer in the space of three days. It is alleged that between 22 and 24 March 2004, Time Bank paid 12 cheques valued at $9,5 billion (USD158, 333.33) each to Watermount Estates, a property company linked to two directors of the bank. On April 21, 2004, the Bank further paid $6 billion (USD1, 000,000) by way of another 12 cheques worth $500 million (USD83, 333.33) each to Watermount Estates.

According to a report in The Standard of 6 December 2004, these payments were made for on-lending to 12 prospective property owners who had applied for stands under development. It was reported that the 12 applicants consist mostly of relatives of the directors of Time Bank. The directors of the bank have been arrested on charges of externalization of funds amounting to USD 786, 697.57.

$5,2 Billion Disappears From Intermarket Banking Corporation

$5, 2 billion (USD866, 666, 666.70) is alleged to have disappeared from VIP accounts of Intermarket Banking Corporation, a subsidiary of Intermarket Group in 2003. According to the Herald newspaper of 25th August 2004, the money was meant to finance the purchase of assets such as cars and houses for investment. The assets were however not purchased and indications are that the money was used to purchase foreign currency, which was then externalised.

<<< Country Profile - Zimbabwe >>>

MOVE TO ADOPT GLOBAL TREATY AGAINST MONEY LAUNDERING FAILS

A move by developing countries to adopt a new global treaty against money laundering failed at the 11th United Nations Congress on Crime Prevention and Criminal Justice held from 16-25 April 2005 in Bangkok. Developed countries argued that such a convention would only make redundant what they already had in place and would also interrupt ongoing anti-money laundering efforts among developed countries. Opposition to negotiating a new treaty was also based on the fact that most UN member states were still in the process of ratifying existing conventions against organised crime, corruption and terrorism.

Read more:

<<< Bangkok Post >>>

OPERATION `WHITE WHALE`

Spanish police executed the biggest crackdown on money laundering in the country`s southern coast. Approximately 41 people have been implicated in the operation dubbed, `white whale` that is reported to have involved laundering of about US$ 336 million. A money trail of funds illegally siphoned from Russian oil company, Yukos, has apparently been determined pointing towards diversion of these funds to a Dutch company and reinvestment in Spain.

A group of lawyers in Marbella is supposedly connected to organised crime groups involved in arms and drugs trafficking and prostitution. The police are said to have seized a ship, two small planes and 42 luxury cars and to have frozen a number of bank accounts.

The network is alleged to have channelled about 600 million Euros from illicit activities through a law firm in Marbella. It is reported that the firm has in the past been used by a number of criminal gangs to create front companies through which it laundered money by investing in real estate in Costa del Sol and moving profits to tax havens.

Read more:

<<< Taipei Times >>>

<<< International News Alliance >>>

BOTSWANA

Botswana`s economy is still largely dependent on cattle ranching. In this industry, substantial amounts of cash are commonly exchanged for cattle with no questions asked. This renders the industry vulnerable to money laundering.

The incidence of financial crime is also rising in Botswana. The Directorate on Corruption and Economic Crime (DCEC) receives reports of suspicious transactions. It remains the only specialised unit that deals with money laundering. It is unclear whether the DCEC can investigate money laundering which does not arise from corruption.

KENYA

Corruption is still rife in Kenya and constitutes the main predicate activity for money laundering. Following on the heels of Kenya`s largest government corruption scam, the Goldenberg Scandal, a new scandal broke out in Kenya in connection with a government tender awarded to a company with dubious registration status, Anglo Leasing and Finance Ltd of Liverpool. Numerous reports have pointed towards the illegal awarding of two contracts to Anglo Leasing and Finance ostensibly to supply a forgery-proof system for producing passports for Kenya and to set up forensic laboratories for the police. Payments of approximately $90 million in commitment fees were made to this company.

Since the story was revealed, Anglo Leasing and Finance is reported to have returned to the Kenya government an amount of Sh468, 656,509.50 (USD6, 150, 347.89) in respect of the controversial contracts.

Kenya is also on a campaign to trace and freeze funds allegedly stolen from the country and secretly stashed abroad during the Moi regime. The process involves investigations to determine the amounts transferred abroad and where they are held, freezing of the funds once they are traced, and commencement of proceedings to repatriate the funds. It is alleged that the funds amount to about USD1 billion.

MALAWI

Predicate activities for money laundering in Malawi are drug trafficking, smuggling, tax evasion, theft, fraud, robbery, corruption, prostitution and trafficking in women and illegal currency dealing. Malawi has a large informal sector that is largely cash based and remains unregulated. Malawi still has not put in place legislation that specifically criminalizes money laundering. A draft Money Laundering and Proceeds of Serious Crime Bill was considered by a Parliamentary Committee in 2003 and returned for revision. A recent sitting of Parliament in Malawi failed to consider the Anti-Money Laundering Bill.

The country has put in place an Anti Money Laundering and Combating the Financing of Terrorism Strategy whose aim is to convert its fight against money laundering and combating of terrorism into action. The Strategy is aimed at ensuring a coordinated and sustained response to the threats of money laundering and terrorist financing.

MOZAMBIQUE

Money laundering has been criminalized in Mozambique for quite some time. The country enacted a comprehensive Anti-Money Laundering Act in 2002 but only issued implementing regulations for most components of the Act in 2004. The main predicate offences for money laundering are motor vehicle theft, armed robbery, dealing in counterfeit currency, drug trafficking and corruption. Corruption in Mozambique involves mainly public sector activities. The Central Office for Combating Corruption within the Attorney General`s Office is investigating several cases of corruption involving senior public officers. In spite of having Anti-Money Laundering legislation in place, law enforcement efforts are concentrated on predicate offences with little attempt being made to trace the laundered proceeds of crime or to link laundered assets to the offence.

NAMIBIA

Namibia has a significant money laundering problem relating to the smuggling of precious minerals and gems. Reported cases suggest that this is one of the major sources of ill-gotten wealth in Namibia. The initial stage involves the theft of rough and uncut diamonds usually by employees of the diamond mining companies; the diamonds are then sold to illegal buyers who may be local residents or foreigners. Other money laundering activities include fraud, theft, drug trafficking, bribery and corruption. Public sector fraud usually involves the generation of fraudulent cheques that are then laundered through the bank accounts of existing or non-existing individuals. These scams typically involve collusion between public service employees in one government department and those in the central payment units. Namibia faces the challenge of cross border movement of cash largely due to its membership in the Common Monetary Area with South Africa, Lesotho and Swaziland. Namibia passed the Prevention of Organised Crime Act in 2004, which criminalizes money laundering. The Act has not yet come into force.

UGANDA

Uganda criminalized narcotics-related money laundering in 2001. The country has a draft Anti-Money Laundering Bill in place that seeks to criminalize money laundering for all serious crimes. Predicate activities for money laundering reported in Uganda are, corruption, tax evasion, theft, fraud, forgery, drug trafficking, cattle rustling, smuggling, trafficking in women and children and illegal money transfers. Since the 1990s, Uganda has had a series of Commissions of Inquiry into alleged corruption in government institutions. These Commissions revealed extensive corruption in Uganda`s public and private sector and numerous cases of unexplained wealth involving public officials. The country has partially implemented recommendations emanating from some of these Commissions and has rejected and nullified at least one report submitted. Uganda has a large informal sector and there is large-scale use of alternative cash-based informal remittance systems that are largely unregulated.

Uganda has been implicated in the smuggling of gold from the Democratic Republic of Congo. According to media reports, the gold is smuggled into Uganda as unprocessed gold dust and nuggets or crude bricks, then smelted and legally exported to refiners. Banks in Hong Kong, Belgium and Britain are said to be handling proceeds from the smuggled gold. It is reported that figures from the Ugandan Bureau of Statistics reflect a mismatch in sales figures for gold exports and gold imports as well as domestic gold production from 1999 to 2003.

<<< More in Business Day of 3 June 2005 >>>

ZAMBIA

Predicate money laundering activities in Zambia are illegal transactions in foreign currency, illegal dealing in narcotic drugs, trafficking in women and children, as well as fraud and corruption.

Zambia is plagued by petty corruption that usually manifests itself as small-scale payment of bribes particularly to public officials, to secure services, and grand corruption that involves holders of high political office and other prominent personalities. In spite of having an Anti- Corruption Commission in place, national authorities are overwhelmed by the escalating problem of corruption.

July 2005: South Africa is to take over the presidency of the Financial Task Force on Money Laundering (FATF) from July 2005. Professor Kader Asmal has been appointed as South Africa`s representative in this position.

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If you would like to have details of your money laundering meetings, conferences, seminars, publications and other developments included in future issues of the Monitor, please send emails with details of contact persons to Nomzi Gwintsa:

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This publication is sponsored by the Royal Norwegian Government. The scope and content should not however, be attributed to the government.

ABOUT THE ISS

The Institute for Security Studies (ISS) is an applied policy research organisation with a mission to conceptualise, inform and enhance the human security debate in Africa.

The Money Laundering Monitor is produced by the Money Laundering component of the ISS Organised Crime and Corruption Programme based in Cape Town, South Africa.

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