In this issue, the Regional Overview Section focuses on money laundering developments in Zimbabwe, Kenya, Malawi, Mozambique, and Zambia.

In Zimbabwe, practices that were initially believed to be malpractices in the private sector turned out to be massive fraud in the banking sector that was facilitated by barely regulated forms of corruption, particularly poor corporate governance. In seven banks, management speculated with depositors’ funds to acquire foreign currencies, some of which were used to establish business concerns outside Zimbabwe, or to procure high value commodities abroad for importation and re-sale in the country.

The judicial commission of inquiry into a scheme to defraud the national fiscus in Kenya revealed a devious scheme, which used a number of corporate institutions, to transfer funds from government coffers to the Goldenberg group of companies. The scheme revolved around fictitious gold and diamond exports from Kenya, for which subsidies were claimed. Losses to the state have been quantified by the Commission. It is evident that some of the proceeds were removed from Kenya, and had not yet been retrieved at the time of the conclusion of the inquiry. The Bosire Commission’s findings have been released to the public, in a report that could be the basis for an interesting case study. The world awaits the reaction of law enforcement authorities in Kenya in the wake of the Bosire Commission’s recommendations.

This issue also highlights depressing levels of economic crime and money laundering encountered in Malawi, Mozambique and Zambia. Although not a cause for consolation, the sub-region is not unique in being vulnerable to money laundering. On the eve of the annual meeting of the Financial Action Task Force on Money Laundering (FATF), held in Cape Town, a study revealed that the scale of money laundered in and through the Netherlands in 2005 amounted to 18.5 billion Euros. The message is clear: efforts to contain money laundering need to be continuously reviewed and upgraded all over the world.

<<< Report of the Commission on Inquiry into the Goldenberg Affair (Bosire Report) >>>

The Monitor uses money laundering indicators selected from a range relied on in monitoring money laundering across the world, which have been selected for their relevance and verifiability.

<<< More on Money Laundering Indicators >>>

Recent reports indicate that two government ministers have been cited in a confidential Reserve Bank of Zimbabwe (RBZ) report on Failed Banking Institutions ahead of an expected criminal trial of the beleaguered Time Bank`s directors on charges of fraud involving Z$440 billion (US$4, 446, 915). The two are, Environment and Tourism minister Francis Nhema and Water Resources minister Munacho Mutezo. The former sat on boards of two financial institutions, while the latter is a former chairman of Time Bank. The two ministers are cited for receiving direct and indirect loans which comprised 60% and 22% respectively of the bank`s capital. These loans were non-performing and represented a potential loss to the bank. The Office of the Attorney General is said to be considering bringing criminal charges against the directors / shareholders for their role in the Bank’s collapse, acts of fraud and externalization of foreign currency.

In another development, Time Bank, which was placed under curatorship in October 2004, is set to resume operations after an agreement was reached between its shareholders and the RBZ. Time Bank and the RBZ are reported to be pursuing various options to resolve two legal disputes they have been embroiled in. The first dispute relates to the RBZ’s management of a US$15 million credit facility extended to Time Bank by PTA Bank in 2000, which Time Bank attributes its financial crisis to, while the second dispute relates to Time Bank’s challenge of its placement under curatorship.

The use of rapidly constructed corporate institutions to siphon depositors’ funds for laundering is further highlighted in the speculative activities involving the Royal Bank, another Zimbabwean bank which collapsed in August 2004. The bank was used by its directors to raise funds which were then channelled to their companies as loans. Some of the loans were used to purchase shares in the bank itself. Repayment would be anticipated from share appreciations, an extremely risky approach.

In other instances the loans were used to purchase equipment to be leased to the bank, or to be used in performing services to the bank, such as construction of new branches. In breach of ethics on conflict of interest, directors virtually awarded themselves contracts to supply automated teller machines, carpets and consultancy services to the bank.

<<< Ministers Named in Time Bank Saga, Zimbabwe Independent, 3 February 2006 >>>

The Financial Action Task Force on Money Laundering (FATF), held its first plenary session in Africa in Cape Town from the 13-17 February 2006. The FATF president, Professor Kadar Asmal of South Africa reiterated at the meeting that combating drugs and money laundering related to drug trafficking was of primary concern to South Africa. The delegates met to discuss ways of building effective infrastructures in the fight against money laundering and terrorist financing in emerging economies, as well as to investigate the links between corruption and money laundering and terrorist financing. On the third day, a joint plenary session of the FATF and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) was held.

<<< Prioritise Drugs, Money Laundering, Business Day, 17 February 2006 >>>

A study commissioned by the Dutch Finance Ministry estimates the amount of money laundered in the Netherlands at €18.5 billion and that money laundering accounts for approximately 5% of Dutch GDP. The study asserts that €17.7 billion comes from crimes committed abroad and €1.8 billion emanates from domestic crimes. The most important money laundering channels are real estate investments, export under invoicing and import overpricing and the use of ‘special purpose’ entities.

The report identifies the Netherlands as a transit country for proceeds of crime due amongst others, to its expertise in financial logistics and its location. Its international position as a trading nation in legal markets makes it attractive for international illegal trading, with criminals hiding their gains, goods and services in the overall trading network. The report identifies some potential adverse effects of money laundering, such as company losses through crime, and distortion of the real estate sector.

The report contends that accepting benefits from crime is short sighted, as it eventually attracts crime as criminals create networks and eventually also locate their criminal activities in a country they have become familiar with.

Internationally, the Netherlands is classified as one of the largest tax havens in Europe. An argument is made that it is not necessarily bad for large countries to be tax havens, as long as the international community does not put sanctions on it. The greatest challenge for fighting money laundering is to strike a balance between trying to attract as much capital as possible, and having to sift out good money from the bad.

<<< More in Finfacts, 20 February 2006 >>>

Corruption is regarded as the main predicate offence for money laundering in Kenya. The Kenya Government has identified two broad areas of intervention to address the scourge of corruption in the country, these are:

• To upgrade the inadequate and weak legal framework in order to effectively fight corruption.
• To reinforce weak institutions and establish new institutions which would provide leadership in the fight against corruption.

The long-awaited Bosire Report on Kenya’s biggest corruption scandal, Goldenberg, was submitted to the Kenya President on the 3rd February 2006. The judicial commission sat for two years, from about the beginning of April 2003 until 10 February 2005. It took more than half a year afterwards compiling its findings, and would have reported to the President by the beginning of November 2005, had it not been for the constitutional referendum that month. The scandal revolved around a series of business deals and various economic schemes involving export subsidies, pre-shipment finance, foreign currency certificates, spot and forward contracts, cheque kiting and outright theft. The transactions were allegedly either illegal or irregular and were regarded as fraudulent. The Commission’s report, which is now in the public domain, deals exhaustively with each of the schemes. The Commission quantified the loss to Kenya as KSh 27,079,578,684, equivalent to US$376 105 259.5 (more than 376 million dollars).

Goldenberg and another scandal, called Anglo Leasing, have led to three Cabinet Ministers resigning from their posts. These are Finance Minister David Mwiraria and Energy Minister Kiraitu Murungi, who have both been implicated in the Anglo Leasing Scandal, and Education Minister, George Saitoti who was implicated in the Goldenberg Scandal. Saitoti was at various times Finance Minister and later Vice-President in the Moi government. He refused to testify to the commission that probed the Goldenberg corruption scandal. Authorities in Kenya are reported to be preparing to freeze assets of individuals suspected of involvement in corruption in an effort to recover looted state funds.

The Governor of the Central Bank stated that Kenya’s anti-money laundering bill would soon be gazetted and that there were good prospects that the bill would be tabled before Parliament later this year. However, similar indications were given in 2005, but developments have been slow.

<<< Bosire Report >>>

The Malawi Anti-Corruption Bureau (ACB) has cited the fact that Malawi has not yet passed its Money Laundering and Proceeds of Serious Crime Bill of 2003 as a major impediment to prosecuting former president Bakili Muluzi in a case in which he is alleged to have deposited into his personal account, K1.4 billion (US$10,68 million) received from donor countries and other sources. The ACB has been criticised from many quarters for the delay in making a decision on whether the former president has a case to answer. It has further been criticised for using the excuse of the absence of the Anti-Money Laundering Act for this delay as the country has in place the Corrupt Practices Act and other pieces of legislation on which the ACB could rely to brings charges against Muluzi.

<<< Read More in The Malawi Nation >>>

Illicit drug trafficking remains a significant predicate offence for money laundering in Mozambique. A number of cases of drug trafficking reported involved Mozambican women who were arrested after visits to Brazil. The women allegedly went to Brazil on short visits, ostensibly as tourists or for shopping and they were caught at the Maputo and Beira International Airports with drugs stored in their stomachs.

The women are reported to have been only intermediaries, or so-called ‘drug-mules’ to transport the drugs and to hand them over to the owners. The women were allegedly paid not more than US$1,000 per transaction. According to law enforcement officers, the drugs are destined, among others, for South Africa and Portugal, from where they may be further transported to North America and Europe.

Mozambique’s Customs and Excise authorities are faced with the challenge of transportation of large amounts of foreign currency in cash, especially, the US Dollar. This phenomenon in which large amounts of cash are transported outside of the formal banking sector, is closely linked to money laundering.

Cases of unexplained large cash holdings continue to raise suspicions of money laundering. In May 2005 the Customs authorities in the northern International Airport of Nampula questioned a Guinea Conakry citizen holding a Kenyan Passport. The man had arrived from Thailand with US$ 103,000.00 in his suitcase, which he did not declare to the authorities. In terms of the Mozambican Exchange Law and regulations, foreign currency exceeding US$ 5,000.00 must be declared to the customs and excise authorities upon entry into Mozambique. However, the Law does not impose any penalty for failure to declare, except for the fact that the owner cannot export the undeclared amount from Mozambique on exit.

In this case the money was collected and deposited in the Central Bank, pending investigation of any criminal offence. Having found no evidence of exchange law violation, the case was reported to the provincial general prosecutor for investigation of money laundering. The explanation given by the holder of the currency was that he was a businessman living in Thailand and that the money was obtained as a result of business dealings in minerals and clothing and that he had come to Mozambique to explore business opportunities. The general prosecutor concluded that there was no evidence of money laundering and the money was given back to the owner. In another case, South African Police found that a Mozambican lorry driver had US$ 400,000.00 in cash in his possession. The man was stopped just a few kilometres from the Lebombo border.

In the two cases mentioned above, there were no legitimate reasons for not using the services of financial institutions. Formal financial institutions would be expected to offer advantages such as safety, convenience of using debit and credit cards or international money remittance facilities. They may have been avoided so as to launder proceeds of unlawful activity. The cases also highlight the need for Mozambique to review laws on cross-border transporting of currency.

• 27-30 March 2006: ISS Workshop on Money Laundering Control for Accountants, Blantrye and Lilongwe, Malawi

• 27-29 March 2006: Eastern And Southern Africa Anti-Money Laundering Group (ESAAMLG) Plenary and 11th Task Force of Senior Officials, Tanzania

• 24-26 April 2006: ISS Seminar on Money Laundering in East and Southern Africa, Gaborone, Botswana

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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:

<<< [email protected] >>>

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

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.