The last quarter of 2006 has been marked by an escalation of initiatives to combat money laundering. Many of them continue to be premised on the belief that money laundering is intertwined with corruption and serious commercial crime. Money laundering is said to be closely linked to fraud, bribery, corruption, exchange control violations, tax evasion. Linkages have also been drawn, somewhat tenuously, between money laundering and terrorism. It is clear that money laundering continues to utilize structures and processes that are intended to serve the lawful economy. It is therefore economic activity, albeit more often than not of a clandestine character.

This issue of the Monitor examines developments in Kenya around the infamous corruption scandal named after the elusive company around which the scandal revolved, namely the Anglo-Leasing Financing Company. At its peak, the scandal cost three ministers their jobs, and threatened that of the Vice-President of Kenya. As with many corruption schemes involving government bureaucrats, the entire web of events that emerged as Anglo Leasing tends to be lengthy and complex. We have attempted to draw out its essential elements, without over-simplifying what occurred. For a detailed study, reference is made to other resource material.

We also profile recent developments in South Africa, Namibia, Tanzania, Zimbabwe and highlight activities underway in west Africa. All of them are expected to have a significant impact on the responsibilities of, on the one hand government and on the other, other regulatory institutions in combating money laundering in Africa going forward.

We note that as a result, the pace of achieving uniformity in legal and regulatory regimes across the region has picked up. We however, remain convinced that success in discharging these added responsibilities will depend as much on the motivation of the mandated bodies as it will on their capacity to access comprehensive and reliable data timeously.

Following revelations in a statement issued from exile in London by former Presidential adviser John Githongo, a parliamentary Committee found that between 1997 and 2004, the government of Kenya awarded procurement contracts worth $400 million and 309 million Euros to 18 shadowy companies all controlled by the persons behind Anglo Leasing Company. Evidence that the beneficiary companies were interconnected consisted of, firstly, shared addresses, secondly, shared directorships, thirdly, that the contracts were similarly structured, and fourthly the incestuous financing relationships among some of the companies involved.

Each of the 18 contracts was so structured as to have a company to provide financing to the Kenya government to enable it to pay for the contract, and a second company to perform the contractual tasks. Githongo explained, and the Committee established, that this arrangement was highly significant.

The introduction of a financing mechanism was a deliberate means of creating public debt as a means of financing the contracts. This would remove the contracts from financing through annual appropriations, as financing the contracts through annual parliamentary appropriations had two problems. First, the amount of money provided for the contracts would be up to the Treasury officials who prepare the budget, and may provide inadequate funds. Secondly, whereas voted funds are subject to direct parliamentary scrutiny, through the Controller and Auditor General, public debt is wholly controlled by the minister for finance and attracts much less scrutiny. The contracts would, thus, be paid for over a number of years directly from the Consolidated Revenue Fund.

Witnesses from the Central Bank of Kenya testified that once the Treasury entered into these contracts, the Bank would put in place standing orders in favour of the supplier, who would receive these as and when they fell due. Neither the Bank nor the Treasury would be concerned as to whether the supplier was performing its part of the contracts as a condition to being allowed these payments.

On this the Public Accounts Committee commented:

The Committee received evidence of the existence of 18 Anglo Leasing type contracts. The contracts all have the same design and features. The contracts are all for large sums of money, and have been entered into by single sourcing. In each case, there are two role players, a financier and a supplier. As has been demonstrated, the financing company and the supplier are sometimes related companies. At other times, the supplier is a reputable international company. Invariably, the financing company is a shadowy entity whose exact identity could not he verified.

It seems that the role of the financing company is to necessitate the creation of debt by the government, as opposed to outright payments for the goods or services proc debt is created, it is the responsibility of the Treasury to service it through the Consolidate Fund, as opposed to the line ministry paying for it through its voted funds. This immediately creates a gap between implementation of the project, which remains the responsibility of the line ministry, and paying for it, which is the work of Treasury. From the documents examined, the Committee noted that Treasury mechanically remittted payment for the contracts without regard as to whether or not, on the ground, the contract was performing.

The Anglo Leasing contract and the 18 other contracts that were questionable, was essentially financed by the government, and not the financing company. The government paid money to the financing company, which then paid the supplier, using that money, who then supplied the goods or services. The government then paid interest to the financing company on its own money.

The inquiry and the resulting adverse publicity temporarily cost three ministers their jobs, and led to the reimbursement of the funds that had been paid out by government. The then Permanent Secretary responsible for Ethics and Governance in the Office of the President, John Githongo, was at the heart of investigations into the scandal. Ho found that it emanated from, and was part of ‘resource mobilisation’ by the ruling Rainbow Coalition in Kenya. In other words, the party was funding itself in a circuitous way, through siphoning funds from the treasury and purporting to pay them to legitimate supplier of goods/services or financier. It was found that Anglo Leasing did not exist as a corporate institution. The Controller & Auditor General concluded that US$200 million had been paid out in this way over a short period of three years. Most of it was recovered, as Anglo-Leasing refunded it, minus the interest. John Githongo resigned from government in the wake of the revelations, fearing for his life.

<<< For more details, refer to the memo by John Githongo to President Mwai Kibaki (NB: large file in PDF) >>>

Assessing the incidence of money laundering involves researching crime, since one cannot claim to analyse money laundering without analysing the predicate illicit activities that yield proceeds for laundering. Four issues suggest themselves in the enquiry:

• How much unlawful activity (particularly, but not just, economic crime) is there?
• How much profit (not all proceeds) is made from these activities?
• How much of the profit is laundered?
• In what manner is it laundered?

It is necessary at the outset to clear some grey areas that tend to obscure inquiry in this sphere. One is that ML activity is not solely derived from criminal activity, although on account of the limitations in many definitions, this usually appears to be the case. Another is that not all the funds laundered within a country are derived from activities carried out within it. Some (often indeterminate) proportion of them will be introduced from outside the country. By the same token, not all the funds produced by illicit activities will be laundered within the territory of their origin, as some (or all) may be transmitted to foreign countries. This point underscores the significance of profiling the avenues of asset transfer between susceptible countries.

It should also be pointed out that liquid assets in the form of cash are not the only commodity that is subject to laundering, as other valuable assets have also been used in this manner.

Speaking at a workshop to sensitise stakeholder institutions about money laundering and their role in combating it, the Governor of the Bank of Namibia Tom Alweendo asked participants to note the spread of illegal financial dealings beyond developed countries to developing countries, such as Namibia. Co-operation between various sectors that could be impacted on, or exposed to, money laundering was important in combating it.

Governor Alweendo’s cautionary remarks are particularly significant, as Namibia reported disconcerting cases of apparent transmissions of suspect funds.

The importance of international co-operation in criminal investigation in the sphere of serious, economic or financial crime and related money laundering has assumed tremendous significance in a number of matters under consideration by Namibian law enforcement agencies and the courts.

Hans Jurgen Koch is wanted in Germany on 203 charges of fraud, involving the equivalent of N$440 million, 12 counts of tax evasion involving the equivalent of N$24 million and four counts of falsifying documents. He allegedly defrauded dozens of German local authorities through the dealings of a finance company that he ran in Germany between 1987 and March 2000. In the process he allegedly diverted millions of Deutsche Mark into his own bank accounts. The German Ambassador claimed in the extradition request that between 1996 and 1999 Koch misappropriated the equivalent of some N$110 million for his own benefit from the financial dealings he had with local authorities.

Koch had been living and running La Rochelle, an upmarket hunting farm that he bought in 1994 near the northern mining town of Tsumeb. The farm was a favourite destination for international hunters, mostly German.

On 28 September 2006 an indictment was unsealed revealing that Jacob ‘Kobi’ Alexander faced 32 counts of crimes relating to an alleged “slush fund” and the backdating of stock options from 1998 to 2006. The charges include conspiracy, securities fraud, making false filings with Us Securities and Exchange Commission, mail fraud, wire fraud and money laundering.

Alexander’s arrest was based on a Namibian warrant at the request of US Federal authorities. Namibia amended its extradition laws to allow the rendition of fugitives to the US on the same day of his arrest (Per Dennis Khama; International Cooperation Directorate of the Ministry of Justice, Namibia). A presidential proclamation designating the United States as a state to which the provisions of the Extradition Act, Namibia apply, was issued just hours before the arrest. Alexander was traced to Namibia through tracking movements on bank accounts.

Rudolf Katumbe is wanted in Botswana in connection with a case in which he was convicted of illegally possessing rough and uncut diamonds. He was apparently arrested in Botswana after he had entered through Mohembo border post in May 2000. He was convicted by the magistrates’ court at Maun and sentenced to seven years imprisonment. On appeal the conviction was confirmed but the sentence was reduced to three years imprisonment in April 2001. He never returned to serve his sentence, and is now facing extradition from Namibia.

One of the five larger banking groups in South Africa, Nedbank was reported to have introduced an anti-money laundering system, called Searchspace Sentinel Anti-Money Laundering System. The system claims to be able to ‘monitor, interpret and flag possible suspicious transactions on all bank accounts.’

The amnesty for tax and exchange control violations ended in South Africa, with the value of declared assets from about 43000 applications being almost R64 billion (US$9 billion). This does not imply any repatriation of assets. It is clear that a substantial proportion of the assets declared are ‘owned’ by off-shore trusts registered in foreign jurisdictions. The amnesty declared the assets to be the property of the donor/beneficiary for limited income tax purposes only. Thus, the donor is obliged to declare interest, rentals and dividends accruing from the assets to the South African Revenue Service. On account of the latter aspect, it is very difficult to estimate the value of accruals to the tax authorities arising from the amnesty process.

Following an initiative by the Financial Intelligence Centre, legislative proposals to mandate supervisory bodies to intervene to rectify compliance failures have been put together as an amendment to the FIC Act. The Bill is expected to be presented to Parliament in 2008.

Malawi adopted the Money Laundering Proceeds of Serious Crime and Terrorist Financing Act early in August 2006. President Bingu wa Mutharika signed it on 22nd August 2006 as Act No. 9 of 2006. It is intended to create capacity to identify, trace, freeze, seize and eventually confiscate proceeds of serious crime. It also targets funds intended to support terrorism. The Act envisages the establishment of a Financial Intelligence Unit to facilitate better prevention, investigation and prosecution of money laundering, and terrorist financing. Financial Institutions will be required to take prudential measures to help combat money laundering and terrorist financing.

In preparing for the implementation of the Act, the Bankers Association of Malawi announced that banking documents will be standardised from the beginning of 2007. According to the association’s executive director Fanuel Kumdana, this will enable commercial banks to collect information on customers that is comparable, to enable data banks to be matched. Malawi has about 10 commercial banks.

In crafting its strategy against money laundering, Tanzania had to consider the following vulnerabilities:

• Tanzania’s economy is largely cash-dominated. Most business activities are conducted in cash rather than by cheque, credit card or other ‘virtual money’. High Value assets such as real estate, motor vehicles and jewels worth millions of shillings can be bought in cash. Some parts of the country do not have banking services thereby necessitating cash transactions or barter transactions.
• Most of the banks are concentrated in urban areas leaving the majority of the population in the remote areas without access to financial services.
• Where financial services exist, poverty has resulted in low-level usage of bank services and the level of savings is insignificant. According to Poverty Reduction Strategy Paper (PRSP) 2000, about 11 million of the population live below the poverty line. About 18.7 per cent of Tanzanians live below the food poverty line and 35.7 per cent cannot meet their basic needs. The rural areas are the most affected ones.
• There is no regulatory framework for alternative money remittance systems. Existing ones include Expedited Mail Services and the conveyance of money by public transport, mainly long-distance buses.
• The liberal policy on Foreign Direct Investments (FDI`s) whereby the source of funds brought into the country by inward investors is not routinely and effectively scrutinized.
• Tanzania does not have national identity cards, which poses a challenge for know-your- customer and customer due diligence processes as well the establishment of audit trails.
• Lack of general public awareness of the adverse impact of money laundering. In fact, given the poverty levels among most Tanzanians, people questioned why Government should worry about the matter.
• Money Laundering and the Financing of Terrorism are relatively new offences in the Tanzanian Criminal Justice system. Their enforcement requires personnel with the necessary technical competence to detect, investigate and prosecute suspects. This tends to be scanty in the country.
• Recent statistical trends showed signs of escalation of the predicate offences associated with money laundering, such as corruption, smuggling, bank robberies, car theft, prostitution, and trafficking in stolen cellular telephone hand-sets.

In November, parliament passed the Prevention of Money Laundering Act.

Government approved the Anti-Money Laundering Bill in principle, but requested more information on the implications of the new law on the business sector. Once further consultations have been made, the Bill is expected to be presented to parliament in 2007.

The Anti-Corruption Commission and the Drug Enforcement Commission have been very active in exposing and investigating corruption related money laundering in Zambia. Most of the cases have arisen in the public service. However, the most visible case of the period remains the Chiluba corruption saga, which has spawned at least two trials in different jurisdictions. A civil case is underway in the English High Court, in which Chiluba and 19 other defendants face a lawsuit at the instance of the Attorney General of Zambia. The case is cited as Attorney General of Zambia v Meer Care & Desai (a firm) and others High Court Chancery Division case number 04C03129. (Ed note: can be found reported as [2007] EWHC 952 (Ch)).

One of the factors which makes the trial interesting is its combination of the alleged prinicipal participants in the alleged fraud on the Zambian treasury (namely ex-President Chiluba, the Dir of Security Intelligence Xavier Chungu, the then Director of Loans & Invetsments (Min of Fin) Stella Chibanda, and the Zambian Ambassador to the US Atan Shansonga) and the intermediaries who facilitated the subsequent money laundering.

The allegations revolved around the fraudulent transfer of US$52 million from Zambia to an account called ZAMTROP held in a London bank account, and further on to a number of destinations and intermediaries, including a company called Access Finance.

Key among the intermediaries were lawyers who allowed their trust accounts to be used in channelling funds between different accounts. This throws up issues such as:

• Whether a lawyer has a duty to be diligent as to the source of funds paid into his/her trust account on behalf of a client
• In what circumstances will a lawyer be considered to have given dishonest assistance in the disbursement of funds held in trust
• What are the risks associated with holding oneself out as a nominee shareholder on behalf of a client
• What are the risks associated with international financial companies set up and registered in off-shore jurisdictions

As regards procedures for the detection of money laundering, and the underlying criminal activities, the facts also bring into stark relief some of the challenges, in particular the following:

• The pervasive climate of fear (of reprisals/victimization), which acts as a formidable deterrent to whistle-blowing in the public sector or indeed any bureaucratic set-up
• This is compounded by an environment which lacks any safety nets for the unemployed, such as was the case in Zambia (and is still the case today)
• How unexplained wealth, (visible in the form of an ostentatious lifestyle) which should be a circumstantial indication of corruption and money laundering, is often ignored
• The importance of developing capacity to trace audit trails and routes followed by proceeds of crime. In the investigation of the Chiluba funds, tracing agents Grant Thornton played an invaluable role.

The hearing started in October 2006, and is expected to be resolved early in 2007. (Ed note: judgement was handed down in favour of the plaintiff in May 2007)

Comment

Among the enduring issues that arise from the later part of 2006, and are likely to continue to exercise the minds of policy makers and civil society in the future are:

The autonomy and security of the tenure of the bureaucrats leading the institutions tasked to combat corruption. This is underscored by the litany of casualties that continued to mount among anti-corruption agencies, as encountered in Kenya (John Githongo), Malawi (the head of the Anti-Corruption Bureau Gustave Kaliwo, and after him the Director of Public Prosecutions Ishmael Wadi).

The question of who should determine the nature and pace of the fight against money laundering has yet to be resolved. Its resolution will in turn determine the extent to which there is political will to confront economic crime and corruption.

Progress with developing capacity to combat money laundering has been noted in west Africa. Initiatives in this period appear to be largely inspired by the successes recorded by the Economic and Financial Crimes Commission (EFCC) of Nigeria and driven by the Inter-Governmental Action Group Against Money Laundering and Terrorist Financing in West Africa (known by its Francophone acronym GIABA).

GIABA comprises Benin, Burkina Faso, Cote d’Ivoire, Guinea, Mali, Niger, Nigeria, Ghana, Togo, the Gambia, Senegal, Liberia and Sierra Leone. Within it two members states, Nigeria and Senegal have established functioning Financial Intelligence units. Nigeria’s FIU is part of the EFCC. It is a member of the Egmont Group.

GIABA has prioritised training and manpower development and the establishment of AML/CFT frameworks across the region that can co-operate with each other.

<<< Additional Information >>>

Please email details of money laundering meetings, conferences, seminars, publications and other developments to: [email protected]

o At the time of writing, the annual meeting of the East and Southern Africa Anti-Money Laundering Group (ESAAMLG) was scheduled for 20-24 August 2007 in Gaborone, Botswana.

o The African Banking Congress takes place from 27-29 August 2007, in Johannesburg, South Africa.

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