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

Significant events have continued to occupy our attention in the first part of 2006. On account of space considerations, the Monitor can only report on a limited proportion of them. The region has witnessed major financial crimes committed in Namibia, but which have also involved Botswana and South Africa in currency transfers. The importance of vigilance in combating money laundering could not be better illustrated than by the events surrounding the activities of Namibia’s Offshore Development Corporation and the Great Triangle Investments. When the dust settles, it may well turn out that a large number of small investors have lost massive amounts of money, on account of activities that have parallels with the Master Bond scam, covered in an earlier issue.

The fallout from the Goldenberg commodity export corruption scam continues to reverberate in Kenya’s political, economic and judicial circles. In spite of a protracted, and relatively thorough judicial inquiry into the shenanigans crafted by Kamlesh Pattni and his co-conspirators, Kenya is yet to report success in prosecuting the culprits. This issue touches on some of the attempts made to get the criminal processes under way. Formidable hurdles loom all over the place. The case against perennial cabinet minister George Saitoti is floundering, in the wake of a court ruling that absolved him from further prosecution. The judgment was scathing in its denunciation of the judicial inquiry. The Attorney General is reported to be on the verge of lodging an appeal. At the same time, other suspects have been rattling their sabres. In the middle of all this, Kenya dismissed a dedicated Director of Public Prosecutions.

We also report on developments in Malawi, where, at the time of writing, an anti-money laundering bill had just been adopted. On the eve of its passing, one of the inspirations behind it, Director of the Anti-Corruption Bureau, Gustav Kaliwo, was suspended for pursuing a major corruption and money laundering case. In the wake of the suspension, the Director of Public Prosecutions was reported to have been asked to resign.

The currency revaluation measures introduced in economically troubled Zimbabwe will keep the spotlight on that country for some time to come. Nowhere else in the region have more than 2000 people been arrested in a week for money laundering. We also report on legislation in South Africa to bring auditors on board in combating money laundering….and the great news about Nigeria’s removal from the Financial Action Task Force’s (FATF) infamous list of Non-Co-operating Countries and Territories. Read on!

MONEY LAUNDERING INDICATORS

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 >>>

THE NAMIBIAN OFFSHORE DEVELOPMENT CORPORATION SCAM

Namibia has been hit by two major fraud and money laundering scandals involving millions of Namibian Dollars. The Social Security Commission (SSC) scandal was first brought to light in 2002 and culminated in a Commission of Inquiry established by the former president in 2003. An urgent application brought before court in 2005 for the provisional liquidation of the company which was at the centre of the scandal, Avid Investment Corporation, led to a public inquiry to trace the missing N$30 million (US$4, 092, 769) which belonged to SSC. While the SSC inquiry was going on, another scandal broke which involved Namibia’s Offshore Development Corporation (ODC). ODC is a Government owned company with a mandate to seek investment opportunities offshore and receive funds for such investment. ODC is reported to have, invested a total of N$100 million (US$13, 642, 565) with a Botswana registered entity called Great Triangle Investments (GTI) since 2003. The investment included N$55 million (US$7, 503, 411) invested on behalf of the Namibia Development Corporation (NDC). The investments were approved and signed off by the Chief Executive Officer of ODC and the Board Chairman. The Permanent Secretary of the Ministry of Trade and Industry, which is responsible for NDC and ODC, sits on both boards and was apparently unaware of any decision to invest the money with GTI. The Ministry launched an investigation when GTI failed to return the funds invested upon maturity.

Investigations revealed that Great Triangle Investments was registered with the Botswana Ministry of Trade in 1997 although its operational physical and contact address could not be traced. The company seemingly had among its directors a former Botswana politician and two South Africans, Fourie, and Theart. Indications were that the politician was most likely used as a front for the two South Africans. Subsequent investigations by the Botswana Police and Scorpions of South Africa suggested that GTI might have been an operational front for Fourie and Theart.

Investigations by the Botswana Directorate of Corruption and Economic Crime have revealed that the money was transferred from banking institutions in Namibia to Botswana and later transferred to certain bank accounts in South Africa before some of it was transferred to accounts in Europe and back to South Africa. It disappeared from the South African accounts. A link has also emerged in Namibia in respect of Peter Boonzaier who was previously linked to the massive Social Security Commission scam. He is alleged to be the middleman who introduced Great Triangle Investments to ODC and received commissions and that an amount of N$100 000 (US$13, 643) has been traced to him.

<<< Country Profile - Namibia >>>

LAW TO FORCE AUDITORS TO SPILL THE BEANS ON BANKS

South Africa is one of the first countries to pass the new Auditing Profession Act No. 26 of 2005, which came into effect on April 1, 2006. In terms of this legislation, auditors are compelled to notify the Independent Regulatory Board for Auditors of any irregularities uncovered during their audits of banks. Auditors must also advise the company’s board in writing within three days, that such irregularities have been reported. The law allows thirty days after a report has been made, for the auditor and management to discuss and clarify the situation. The auditor then has to report to the board that the irregularity is, or is not, taking place and what steps have been taken to prevent, or recover money lost from such irregularity. In the case of banks, such reportable irregularities include non-compliance with the Financial Intelligence Centre Act, money laundering and fraud.

<<< Article in Business Day, 14 June 2006 >>>

G8 TO COMBAT MONEY LAUNDERING AND TERROR FINANCING

The finance ministers of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States have re-affirmed their commitment to combat money laundering, and terrorist financing. They agreed to develop multilateral financial mechanisms to eradicate criminal and illegal activities. This was said at their meeting in Saint Petersburg, Russia on 11th June 2006. The G8 ministers issued a joint statement in which they, among others, confirmed their determination to build up their mechanisms to freeze assets produced by crime and to exchange information, as well as to develop multilateral financial mechanisms to eradicate criminal and illegal activities. They urged all countries to adhere to Financial Action Task Force (FATF) recommendations.

<<< More in Zee News, 11 June 2006 >>>

NIGERIA REMOVED FROM FATF LIST OF NON-COOPERATIVE COUNTRIES

Nigerian President Olusegun Obasanjo has welcomed the removal of Nigeria from the International Financial Task Force (FATF) list of non-cooperating countries in the fight against money laundering. He said the move would boost the country’s international profile and that Nigerians would now find it easier to transact business with foreign partners, as existing restrictions on their ability to engage in financial transactions outside the country will be removed. He commended members of Nigeria’s Inter-Agency Committee who crafted the national Anti-Money Laundering Strategy Against Money Laundering and Combating the Financing of Terrorism and worked with the FATF to ensure that Nigeria met its criteria for removal from its list of non-cooperating countries, as well as the National Assembly for passing the required legislation.

The FATF announced in Paris in June 2006 that it had removed Nigeria from a list of countries that do not co-operate in the fight against money laundering because it now had an operational financial intelligence unit and had taken steps at the highest levels to fight corruption.

<<< More in Business in Africa, 26 June 2006 >>>

BOTSWANA

The Namibian Offshore Development Corporation/Great Triangle Investments scandal (refer to Top Story) has highlighted Botswana’s vulnerability to money laundering and the weaknesses in its anti-money laundering regime. Botswana has a Proceeds of Serious Crime Act that criminalises money laundering.

GTI was registered in Botswana but had apparently lain dormant for some time. The normal practice would be for a dormant company to be de-registered by the Registrar of Companies, but this did not happen in the case of GTI. Anecdotal information points towards an audit trail of ODC funds being transferred from Namibia through South Africa and then to Botswana into business and personal accounts of one of the directors of GTI. The funds were further remitted to various countries abroad and back into South Africa. All these transactions occurred in spite of the Proceeds of Serious Crime Act, which criminalises money laundering and the Banking (Anti-Money Laundering) Regulations of 2003, which impose reporting requirements for suspicious transactions.

KENYA

Kenya’s shadow finance minister tabled a report before Parliament, which showed that Charterhouse Bank had been used by a group of companies for money laundering and tax evasion activities. These activities are estimated to have cost the country between US$243 million and US$338 million in tax revenue. The report claimed that a detailed examination of Charterhouse Bank’s operations had revealed that a number of account holders had multiple dummy bank accounts, which is a common technique used by tax evaders.

Further reports are that several people, including the current finance minister and the suspended Central Bank of Kenya Governor are being summoned before Parliament to explain the alleged scams.

In another development, the Kenyan Attorney General has reportedly embarked on a move to fast track the corruption and abuse-of-office trials of several prominent people accused of widespread corruption. The accused had made a series of constitutional challenges, which stopped the cases from proceeding in accordance with a legal provision that allows for the halting of a criminal trial if the accused launches a constitutional challenge. The decision will have an impact on the trials of several leading officials in Kenya, as well as businessman Kamlesh Pattni, the mastermind behind Kenya’s   Goldenberg scandal.

Meanwhile, one of the top personalities implicated in Goldenberg, Professor George Saitoti, was granted an injunction against prosecution by the constitutional court, a decision that has been greeted with dismay in some quarters, but jubilation in others. The Attorney General is reported to be considering an appeal against the court ruling.

<<< Article in The Standard, 23 June 2006 >>>

MALAWI

Malawi’s Parliament finally passed the country’s Money Laundering Proceeds of Serious Crime and Terrorist Financing Bill 2005 in the first week of August 2006. The bill was gazetted on 2 December 2005 and made available for public scrutiny in January 2006. The bill has been subject to vigorous debate in Malawi with several changes being proposed mainly by the Legal Affairs Committee of Parliament. One of the new additions to the bill is the establishment of a financial intelligence unit which will be an autonomous central national agency responsible for receiving, requesting, analysing and disseminating to competent authorities, disclosures of financial information in order to counter money laundering and financing of terrorism in Malawi.

The Bill has been plagued by controversy since its inception. Media reports have alleged that perceptions seem to have been created that one of the people to be targeted by the Bill is the former President of Malawi. Some of the reports implicate the former President in funding some members of Parliament to reject the Bill on the grounds that he fears the Bill may be applied retrospectively and therefore lead to his arrest. These prompted the Chairman of the Parliamentary Legal Affairs Committee who is also the former president’s son, to denounce the allegations and to state that the Bill should not be used to target specific people. He is also reported to have stated that as a committee they had worked very hard to support the bill and that it was their desire that the bill should be passed and that it should not be politicized.

Malawi continues to experience high rates of fraud, which is believed to yield more money for laundering than any other crime in the country. A 2005 KPMG Forensic Africa Fraud and Misconduct Survey ranked Malawi second after Swaziland in terms of countries where fraud was perceived to constitute a major problem.

<<< Read More >>>

MOZAMBIQUE

The Mozambican parliament unanimously ratified the African Union (AU) and the United Nations Conventions Against Corruption on 26 April 2006.

Foreign Minister Alcinda Abreu, in introducing the ratification motion, declared that the international community was aware of the scope of corruption, and its connection with other criminal phenomena, such as money laundering. The Minister said the purpose of the AU Convention was to promote cooperation between African states and to strengthen mechanisms to hinder, detect, punish and eradicate corruption and similar offences in the public and private sectors.

The Mozambican house, the Assembly of the Republic passed an anti-money laundering law several years ago, but so far nobody has been prosecuted under it.

<<< Read More >>>

ZAMBIA

The Zambian Drug Enforcement Commission has through its Anti-Money Laundering Unit (AMLU) been instrumental in arresting various individuals for various anti-money laundering offences. A significant number of these cases involve fraudulent activities and theft of public funds by public officials. The funds derived from these activities have in most cases been used to purchase houses and motor vehicles.

The trial of former President Chiluba in which he and others are charged with theft of public funds, abuse of authority of office and money laundering is still pending in court. A number of motor vehicles and houses connected to this case have been seized by the Task Force on Corruption, which is made up of staff from the Drug Enforcement Commission, Zambian Police, Anti-Corruption Commission, Office of the President and the Director of Public Prosecutions. The Task Force is tasked with finding and retrieving ill-gotten Zambian funds and assets.

ZIMBABWE

The Reserve Bank of Zimbabwe (RBZ) issued ‘Guidelines on Anti-Money Laundering and Combating of Terrorism for Financial Institutions and non Financial Businesses & Professions’ in May 2006. The guidelines are aimed at stemming what the RBZ says is the increased threat of money laundering and warning banks against the risk of signing on as clients what it describes as "politically exposed persons". The Reserve Bank describes such politically exposed persons (PEPs) as individuals who are or have been entrusted with prominent public functions, including heads of state or of government, senior politicians, senior government, judiciary or military officials, senior executives of publicly owned corporations and important political party officials. According to the guidelines, banks must seek and make available more personal details of their high-profile clients, including how they make their money, and must also keep records of accounts and all transaction records for at least 10 years after closure or completion.

According to the RBZ, business relationships with individuals holding important positions and with persons or companies clearly related to them may expose a bank or cash dealer to significant reputational and/or legal risks. The guidelines urge closer scrutiny of "unusual features", such as large transactions, demands for secrecy, and regular transactions involving sums just below a typical reporting amount. Penalties of Z$5 billion (US$ 49,547) and Z$1 billion (US$9909.40) will be imposed on a bank for failure to report a case of money laundering, and for breach of rules on customer identification respectively.

In another development, the Reserve Bank of Zimbabwe recently introduced a new currency in Zimbabwe by knocking off the final three zeroes from the Zimbabwe Dollar. The move is meant to curb the country’s high inflation rate of 1200%, corruption and currency speculation. Invoking the Presidential Powers (Temporary Measures) (Currency Revaluation) Regulations, Statutory Instrument 199/2006, the Reserve Bank introduced a new set of ‘bearer cheques’, declared that the terms ‘cash’ and ‘currency’ include bearer cheques. The new currency, most of it in the form of bearer cheques, will completely replace the existing currency on 22 August 2006. During the period of transition, the old currency and the revalued currency co-exist, and holders of the old currency are required to exchange it at banks and other financial institutions. No individual may exchange more than Z$100 million within a seven-day interval, and no corporate body may exchange more than Z$5 billion unless they produce a tax clearance certificate and a declaration of the source of the excess. Excess deposits are liable to be reported to the Suppression of Money Laundering Unit of the Reserve Bank for investigations into the source of the excess funds.

In the wake of this development, there has been a stampede by holders of excess Zimbabwean currency to exchange it for the new currency. To evade the new reporting regime, cash-flush entrepreneurs have engaged in high value commodity purchases. The Reserve Bank has been responding with extraordinary measures such as stopping, raiding and searching members of the public and cross-border traders. Any currency in excess of Z$100 million is liable to confiscation. In the first week of the advent of the regulations, Zimbabwean authorities are reported to have arrested more than 2000 people, for what they refer to as money laundering.

<<< Read More >>>

• 21-25 August 2006: Annual Meeting of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Harare, Zimbabwe

• 25-27 October 2006: Regional Money Laundering Seminar, Dar es Salaam, Tanzania

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.

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 ISS Organised Crime and Money Laundering Programme based in Cape Town, South Africa.