Chapter 1: Money laundering developments in Malawi, 2004 to 2006

CHAPTER 1

Money laundering developments in Malawi, 2004 to 2006

 

Jai Banda

 

Monograph No 132, May 2007

 

CONFRONTING THE PROCEEDS OF CRIME IN SOUTHERN AFRICA
An Introspection

 

Edited by
Charles Goredema

 

Introduction

 

On taking office in May 2004, newly elected President Bingu wa Mutharika clearly signalled his administration’s intention to tighten fiscal management and fight corruption and financial crime.

In July 2004 Malawi adopted an anti-money laundering/combating the financing of terrorism (AML/CFT) strategy, to translate the country’s commitment to combating international money laundering and terrorist financing into tangible measures. The strategy encompassed the prevention of money laundering and the enforcement of anti-money laundering measures.

A survey in 2004 revealed that there was little understanding of the concept of money laundering in Malawi. Except for banks, sectoral representatives did not understand it or the issues it raised for their work. The obligations implicit in the revised Financial Action Task Force (FATF) Recommendations1 did not feature in planning.

The AML/CFT strategy sought to conduct thorough awareness campaigns so that the public and all reporting stakeholders could understand their respective roles in fighting money laundering and terrorist financing. It was argued that if all stakeholders appreciated the implications of money laundering and terrorist financing, they would realise the importance of supporting efforts to confront these offences. After securing political will and ‘buy in’from all stakeholders, the country would put in place appropriate legal and regulatory frameworks. The major assignment was to prepare legislation against money laundering and terrorist financing on the basis of the revised FATF 40+8 Recommendations, United Nations conventions and resolutions.

 

Once the necessary legislation was in place, the country would establish and build the capacity of a financial intelligence unit (FIU) to act as a hub linking the reporting institutions with the investigative and enforcement agencies or counterpart institutions in other jurisdictions.

The AML/CFT strategy has existed for more than two years. This chapter reviews developments during the period the strategy has been in place.

Legislation against money laundering in Malawi

The development of anti-money laundering law

Anti-money laundering law took long to develop in Malawi because of mistrust and political power struggles, in a context in which President Bingu wa Mutharika’s party does not have the majority it requires to push its legislative programme through Parliament.

The first attempt to introduce money laundering legislation in Malawi through an amendment to the Penal Code in 2000 was rejected on the basis that the proposed law was not wide enough. It was suggested that a comprehensive Bill be drafted. The result was the Money Laundering and Proceeds of Serious Crime Bill 2002, first presented to Parliament on 22 June 2002. Finding it quite complex, Parliament referred it to the Parliamentary Committee on Commerce for review. The committee questioned why the administration of the Bill was vested in the Minister of Home Affairs. Following a lull, the Bill was regazetted on 10 September 2004, with the administration of the Bill placed in the hands of the Minister of Finance.

Despite this change, the Bill could not be tabled as opposition Members of Parliament felt that if the Minister of Finance was left to administer the Bill, the law would be abused to persecute them. They also raised other concerns. On 2 December 2005 the Bill was regazetted as the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Bill 2005. It now took into account some of the concerns raised by the opposition, for instance the setting up of the Financial Intelligence Unit.2 

Notwithstanding the inclusion of the unit, the legislators were still not satisfied. The Legal Affairs Committee of Parliament argued that the Bill was still not well understood among stakeholders as there had been a limited public familiarisation campaign. Another matter of concern was the date of commencement of the Bill. Sentiments were raised that it would be retrospective. The chairman of the Parliamentary Legal Affairs Committee, the Honourable Atupele Muluzi, son of the former president, Bakili Muluzi, threw in his lot with arguments that the bill should not be used to target his father.3 The opposition insisted that the Bill should have a specific provision stating that it would not be applied retrospectively. Parliament was accordingly not prepared to pass the Bill into law.

Several meetings took place between MPs, the Ministry of Justice and the Reserve Bank of Malawi, during which the MPs insisted that their recommendations should be taken on board.

The upshot was the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Bill 2006, gazetted on 3 May 2006. This bill was debated and passed by Parliament on 4 August 2006 and assented to by President Mutharika on 22 August 2006.

Measures to prevent money laundering under the new Act

The Act imposes a new set of anti-money laundering responsibilities on financial institutions. It sets out a broad conceptualisation of a financial institution.4 Persons concerned must be carrying on a business. The Act enumerates the defining activities of a business in quite an exhaustive list, including:5

• issuing and administering means of payment, such as credit cards, traveller’s cheques and bankers’ drafts;
  
  

• trading for own account or for account of customers in money market instruments such as cheques, bills and certificates of deposit;
  
  

• casino and lottery;
  
  

• a trust or company service provider;
  
  

• legal practitioners, notaries, other independent legal professionals and accountants;
  
  

• dealing in real estate, when the person dealing is involved in transaction for a client concerning the buying and selling of real estate; and
  
  

• such other business as the Minister may prescribe by notice published in the gazette.

Measures to combat money laundering are contained in both the Banking Act (Chapter 44:01) and the new Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act 2006 (hereinafter referred to as the Money Laundering Act).

Before the latter Act came into being, the offence of money laundering was not defined in Malawi. In terms of section 35 of the new Act, a person commits the offence of money laundering if, knowing or having reasonable grounds to believe that any property is entirely or partly the proceeds of crime, he or she

• converts or transfers the property, with the aim of concealing or disguising its illegal origin or to assist anyone involved in committing the offence to evade detection;
  
  

• conceals or disguises the true nature, origin, location, disposition, movement or ownership of the property;
  
  

• acquires, possesses or uses it; or
  
  

• conspires to commit any of the above acts or omissions.

The definition of ‘money laundering’ clarifies what money laundering is and helps one to appreciate the measures stipulated in the new Act.

Customer identification is required by both Acts. Bankers under the Banking Act must take all reasonable steps to establish the true identity of the person concerned in a transaction.6 Under the Money Laundering Act, every financial institution is required, before entering into a business relationship, to ascertain the identity of the customer on the basis of reliable and independent data or information.7

In Malawi personal identification is difficult because of the absence of a national identity card system. In addition, only a minority of Malawians have passports or driving licences. National identity cards are only expected to be introduced by the end of 2007.

Financial institutions are required to ascertain the nature of the client’s business when a business relationship is established. This is expected to facilitate the profiling of normal client business activity. The Act goes further by requiring financial institutions to establish the purpose of any transaction involving an amount above a prescribed threshold.

Having sufficient information about a customer/client or a prospective customer/client underpins all anti-money laundering procedures that depend on a financial transaction base. In such procedures information is the most effective weapon against systematic money laundering through formal intermediary institutions. In terms of the ‘know your client’ injunction a person who violates the provision is liable in the case of a natural person to imprisonment for two years and a fine of MWK100,000 (US$712), and in the case of a corporation to a fine of MWK500,000 (US$3,560).

If the financial institution does not obtain satisfactory evidence of the identity of a customer it is obliged to report the attempted transaction to the FIU and should not proceed further with it.8 

The new legislation outlaws anonymous accounts or accounts in fictitious, false or incorrect names,9 and requires financial institutions to maintain records of account transactions for seven years. Banks are familiar with long-term record-keeping, and with the prohibition in the Banking Act against processing suspicious transactions.10  Unfortunately the proscription in the Banking Act did not impose an obligation to report suspicious transactions. It only stopped banks from facilitating transactions which they perceived to be suspicious.

Under the new law a transaction exceeding a prescribed threshold in foreign currency, or one that is suspected on reasonable grounds to be related to the commission of a money laundering offence or the funding of terrorism, is reportable within three working days, and wherever possible before the offence is committed. A financial institution is required to take reasonable measures to ascertain the purpose of the transaction, the origin and ultimate destination of the funds involved, and the identity and address of any ultimate beneficiary, and communicate its findings in a report to the FIU.11 

It is important to note that as the types of transactions that may be used for money laundering are almost unlimited, it is not possible to define in a limited or all-embracing manner what constitutes a suspicious transaction. Financial institutions have to be vigilant to transactions that are “not in keeping with the client’s profile”. Typically these transactions involve large cash payments that seem out of character for the turnover of the business. It is suggested that examples of what could constitute suspicious transactions would be useful as guidelines although they cannot be exhaustive and would require updating and adaptation to changing circumstances and new methods of laundering money. The guidelines would be an aid only, and would not be applied as a routine instrument in place of common sense. While each individual situation may not be sufficient to suggest that money laundering is taking place, a combination of such situations may indicate such a transaction.

Under the new legislation an auditor (whether internal or external) of a financial institution or a supervisory authority who suspects the commission of a money laundering offence is obliged to report the transaction to the FIU. Failure to do so renders the auditor liable to prosecution. Auditors are apprehensive that reporting suspicious transactions will put them in a tight corner where they have to find a balance between earning a living and biting the hand that feeds them. They argue that there is no legal protection from reprisals, such as dismissal, for reporting directors’ or principals’ suspicious transactions to the FIU. An auditor who does not report is liable to imprisonment for one year and a fine of MWK100,000 (US$712) or in the case of a corporation to a fine of MWK500,000 (US$3,560) and loss of business authority.12 

The sole protection afforded to auditors is found in the Corrupt Practices Act 1995 (Act 18 of 1995), which provides for protection of whistle-blowers and other informers. In terms of section 51(A) of the Act, any person who believes that the public interest overrides the interest of the institution in or under which he serves or to which he is subject, or overrides the interest of a particular community, association or society to which he belongs, may inform the Anti-Corruption Bureau (ACB) or the police of a corrupt practice that he knows or believes is being perpetrated by or in that institution.

The provision further stipulates that no information relating to a whistle-blower or to any other informer who has provided information to the bureau or to the police shall be admitted in evidence in any civil or criminal proceedings and no witness shall be obliged or permitted to disclose the name or address of such whistle-blowers. Any information about a whistle-blower contained in documents used as evidence in court must be concealed from view or obliterated in order to protect the identity of the whistle-blower.

The new law prohibits any person or institution from ‘tipping off’ the subject of a suspicious transaction report, on pain of imprisonment of up to ten years and a fine of MWK100,000 (US$712).13 The identity of persons and informants in suspicious transaction reports are also protected.

The Money Laundering Act also requires financial institutions to establish and maintain internal reporting procedures.14 In terms of the new law, every financial institution is obliged to establish and maintain procedures and systems to

• implement customer identification requirements;
  
  

• implement record-keeping and retention requirements;
  
  

• implement reporting requirements;
  
  

• make its officers and employees aware of the laws and regulations relating to money laundering and the financing of terrorism;
  
  

• make its officers and employees aware of the procedures, policies and audit systems adopted by it to deter money laundering and the financing of terrorism; and
  
  

• screen persons before hiring them as employees.

Financial institutions are responsible for training their officers, employees and agents to recognise suspicious transactions, pick out trends in money laundering and the financing of terrorist activities, and detect money laundering risks within financial products, services and operations. They also have to appoint compliance officers, who are responsible for ensuring compliance with the Act and any other law relating to money laundering or the financing of terrorism. Compliance officers act as a link between the financial institution and the supervisory authorities and FIU.

Responses by vulnerable institutions to money laundering

Since there was no legislation criminalising money laundering, financial institutions did not feel obliged to pay particular attention to it, let alone take the trouble to report suspicious transactions.

Estate agents and motor dealers had no mechanisms at all to respond to money laundering. Apart from the Malawi Revenue Authority (MRA) audits on companies, not much was done to counter money laundering. Against the background of an increase in the use of fake documents to avoid import duty and to clear stolen vehicles, the MRA issued a warning in December 2004 to the general public against purchasing fraudulently cleared motor vehicles.

The MRA is now working with the ACB and the Fiscal Police to fight corruption and money laundering. The MRA has further established a department to investigate tax fraud. The department has established several units – such as special enforcement squads, flexible anti-smuggling teams (FAST), patrol squads, special investigations units, tax audit teams, post clearance audit teams, transit check points, and many others – just to fight tax evasion, tax-related fraud and money laundering.

In September 2004 the MRA suspended three employees for allegedly either undervaluing imported goods or failing to charge duty at all on some goods from Tanzania. The three employees at the Mzuzu customs office allegedly connived with the importers of the goods. The Mzuzu Fast Team intercepted two truckloads and investigations established that some goods were undervalued and on others no duty had been levied at all. Similarly, on 4 August 2005 the MRA arrested a businessman for evading tax amounting to MWK8.8 million (US$70,968) by disguising new fabrics imported from India as second-hand clothes to pay less tax. In January 2006 the MRA dismissed 27 employees for corruption.

The Reserve Bank of Malawi’s efforts against money laundering have taken the following forms:

Control of entry into the finance sector

In order to minimise the likelihood of criminals or their organisations taking control of banks or setting up their own banks, the Reserve Bank put in place a rigorous licensing process to ensure that only ‘fit and proper’ persons are allowed to own and manage financial institutions.

The licensing process involves a review of the profiles of shareholders, directors and executive officers in terms of integrity, expertise and working experience to operate a bank in a sound and prudent manner. Although the licensing process cannot guarantee that a bank will be well run after it opens, it has proved to be an effective method for reducing financial crime in the banking sector.

Promotion of sound corporate governance principles

The Reserve Bank has also been promoting sound corporate governance principles to enhance the fight against money laundering. It has been mindful of the fact that a bank may, after having been licensed, take action or fail to take action, the effect of which may facilitate money laundering. For this reason the Reserve Bank vets certain actions by a licensed institution and promotes good governance. The following are examples of this:

• Approving changes in shareholdings
  
  An institution owned by dishonest individuals is unlikely to be managed honestly. As part of its regulatory role, the Reserve Bank assesses the suitability of prospective shareholders in terms of their past banking and non-banking business conduct and integrity.
  
  

• Approving the appointment of new directors or executive officers
  
  The Reserve Bank’s role has been to prevent the appointment of individuals who may commit fraud or who may not be competent enough to ensure systems that can forestall financial crime. Unfit directors have to be kept out of circulation in the financial sector.

Other directives by the Reserve Bank of Malawi

During the period under discussion the Reserve Bank has noted the haemorrhaging of much-needed foreign currency from the country. This has been attributed to ineffective and obsolete financial laws to regulate what are perceived to be the main outlets of foreign currency, namely the foreign exchange (forex) bureaux.

Amid protests, the Reserve Bank increased its capital requirements for forex bureaux as one way of plugging the holes. In the past, capital to start a bureau was very low and as a result this kind of business was open to individuals of doubtful integrity. Dishonest businessmen with little capital would open forex bureaux specifically to acquire foreign currency, which they would smuggle out of the country. As a means of controlling the forex business the Reserve Bank increased the capital requirements so that only those who could put up security could run forex bureaux. The Reserve Bank is also monitoring the performance of forex bureaux.15 

The Reserve Bank deregistered the Unit Trust of First Factory Company and First Asset Management Limited for not complying with the rules governing the industry. It claimed that malpractices were involved, citing misrepresentation of capitalisation and foreign exchange violations as some of the reasons for the closure of the companies. The bank’s spokesperson added that corporate governance violations by the two institutions also contributed to their deregistration. On 18 May 2005 the Reserve Bank revoked the licence of one of Malawi’s established banks, Finance Bank, on allegations of committing “several acts of operational malpractices including forex flight and non-compliance with the law”.16 The Governor of the Reserve Bank, Victor Mbewe, could not at the time say for sure if the closure of Finance Bank had anything to do with money laundering. Because of the absence of legislation in Malawi it was very difficult to track down money laundering culprits.

In March 2006 the Reserve Bank issued further directives for licensed institutions in Malawi. These, which apply to all banks and other financial institutions licensed under the Banking Act, are as follows:

Audit Committee

In terms of Directive No. D05-06/1A, licensed institutions are required to have an audit committee. The functions of the audit committee are to

• facilitate and promote communication regarding the licensed institutions’ internal control systems, risk management or any other related matters; and
  
  

• receive and review internal and external audit reports and ensure that senior management takes appropriate and timely action to correct weaknesses in internal control, non-compliance with policies, laws, regulations and directions, and other problems disclosed by the auditor.

The directive further calls for the appointment of an independent, professionally qualified auditor who is acceptable to the Reserve Bank. Licensed institutions have to be audited annually by the independent auditor. Within six months of the close of its financial year, each licensed institution is required to submit an audit report to the Reserve Bank. The independent auditor is accountable to the Reserve Bank at all times, but especially in the following circumstances:

• where there has been serious non-compliance with the provisions of the Banking Act, the Reserve Bank of Malawi Act, or any regulations issued under the Acts and any other directives issued by the Reserve Bank;
  
  

• where a criminal offence involving fraud or other dishonesty has been committed; or
  
  

• where a senior management official in a key position has unexpectedly left employment.

The directive goes further, stipulating remedial measures and administrative sanctions, which include the suspension of the establishment.

The directive goes a long way in responding to the threat of money laundering since audits help to establish paper ‘trails’ of transactions.

Conflict of interest

Directive No. D04-06/TRP deals with transactions between related persons. The object of the directive is to ensure that all transactions between a licensed institution and its insiders and related persons are at arm’s length. Licensed institutions are thus prevented from entering into a transaction with, or for the benefit of, an insider or related person if such a transaction is on less favourable terms and conditions than it would be with persons who are not related to the licensed institution.

In terms of the directive, an institution’s board of directors must adopt, and ensure that senior management officials implement, a written policy covering all transactions. The directors are also required to monitor compliance with the policy.

A director in a senior management position who is party to or has an interest in any transaction with the institution must disclose the nature and extent of his or her interest and must leave any meeting at which the transaction is discussed. Each institution is required to maintain a record of the disclosures made by directors or senior management officials who are party to or have an interest in the transactions. Each licensed institution has to have procedures in place to identify insiders and related persons and these records must be updated at least once a year. The directive further requires each institution to submit a quarterly report to the Reserve Bank showing all exposure to insiders and related persons and providing evidence of compliance with the directive.

Failure to comply with this directive allows the Reserve Bank to impose remedial measures, including administrative sanctions. It can be argued that this directive is also a response to the threat of money laundering as it endeavours to prevent insider trading, which can yield money for laundering.

The commercial banks

Besides complying with the directives issued by the Reserve Bank, commercial banks have also put measures in place to detect money laundering. Notable among the banks is Stanbic Bank, which has engaged a full-time money laundering officer whose duties include supporting management in facilitating the development, establishment and maintenance of a co-ordinated and structured process and procedures for the effective management of operational risk related to money laundering within the bank. The officer also assists the bank’s legal counsel and company secretary in providing legal, company secretarial and compliance services to ensure that the bank adheres to the principles of corporate governance, complies with the requirements of the regulators, and operates within the applicable legal framework.

The National Bank, which is said to be the largest bank in Malawi, also has an officer who deals with money laundering issues. The bank has further drafted a money laundering policy, which had still to be approved at the time of writing. The bank has also started training and appraising its staff on the new legislation.

Predicate offences for money laundering

The principal source of criminal law in Malawi is the Penal Code, Chapter 7:01. The code applies to offences committed wholly or partly within and partly beyond the country’s jurisdiction. Predicate offences in the code include fraud and breaches of trust, whose maximum sentences are less than three years. In terms of the Money Laundering Act, “serious crime” means an offence against the provision of any written law in Malawi for which a punishment of not less than 12 months may be imposed. Theft, robbery and extortion, housebreaking, burglary and dealing in dangerous drugs are all criminalised under the Penal Code in Malawi. All these predicate offences yield money for laundering. The period has seen a rise in child trafficking cases and the selling of body parts, the culprits masquerading as businessmen in order to disguise their illicit activities. This has led to calls for comprehensive legislation against child trafficking and the sale of human body parts.

Enforcement of money laundering laws

There have not yet been any prosecutions for money laundering in Malawi, though individuals have been charged for various predicate offences that yield money for laundering. The FIU, which is still being set up, is the main institution to combat money laundering. Besides receiving, analysing and assessing reports of suspicious transactions, it is supposed to work with the law enforcement and supervisory authorities. Its duties as laid down in the Money Laundering Act are quite wide and elaborate. However, since this is a new office it requires properly trained personnel. The challenge for Malawi is to ensure that capable personnel are employed so that the FIU can operate effectively.

If money laundering laws are to be properly enforced the issue of protection of witnesses is important. It is somewhat disappointing that in the Money Laundering Act the provision for whistle-blower protection is rather passive. Section 45 states that no civil, criminal, administrative or disciplinary proceedings can be taken against any whistle-blower who acts in good faith.

Malawi does not have an established infrastructure to implement the protection of whistle-blowers, and comprehensive legislative and institutional measures are required in this regard. Despite there being no cases requiring witness protection during the period under discussion, there is a need for institutional measures to protect whistle-blowers.

Forfeiture and confiscation

Malawians generally regard the forfeiture and confiscation of property with misgiving and suspicion, considering the history of this form of punishment. They have lived through an era of abuse of forfeiture laws, in which government could order forfeiture without justification.

The new money laundering law provides for confiscation of property. The underlying principle of this law is that a person should not be allowed to become unjustly enriched as a result of criminal conduct. Therefore, people who have gained material advantage from the commission of serious offences will be deprived of this advantage. Anyone who uses property or allows it to be used to commit a serious offence will have the property forfeited. This outcome is balanced against the right of the individual not to be deprived of property without due process of law, which is a constitutional right. Built into the forfeiture process of the new legislation are notice requirements and the opportunity to make submissions to the court to ensure that due process is observed. The provisions in the new Act on confiscation depend on conviction.

Before a court makes a confiscation order, it must take several factors into account. In the case of the proceeds of crime, the court must be satisfied that these were derived, obtained or realised as a result of the commission of a serious crime. The court must be satisfied that the lawful income of the convicted person cannot account for the acquisition of the property. These factors are designed to avoid the draconian results of orders made in error.

Where a person is convicted of an offence under the Corrupt Practices Act the court is empowered, in addition to any other penalty, to order that any property or value acquired through the offence be forfeited to the government. The court is also empowered to order the return or repatriation to Malawi of any money or property or the value of any property located outside Malawi.
The Corrupt Practices Disposal of Recovered, Seized or Frozen Property Regulation (Government Notice 37/1999), permits recovered, seized or frozen property that comes into the possession of the ACB to vest in the state if it cannot be returned to the rightful owner. This will only occur if it is not claimed within three months of a public notice in the gazette. There have been no cases of this nature in the country during the last three years.

If it is no longer possible to confiscate the proceeds of crime – because they have, for instance, been diminished or cannot be found – the court may order payment instead of making a confiscation order.

Investigation of predicate activities and money laundering

The investigation of activities connected to money laundering is the responsibility of the Malawi police force, which is divided into different branches. The general duties branch investigates ordinary theft, theft from persons and motor vehicles, and shoplifting. These are relatively minor, but are also linked to money laundering. The drug section investigates drug-related crime, and the anti-motor vehicle theft section investigates motor vehicle thefts. Both of these predicate activities yield money for laundering. The Criminal Investigation Department (CID) investigates sophisticated and complicated cases such as fraud, housebreaking, burglary and armed robbery. Under the CID there are several branches, including the fiscal branch, that deal mainly with white-collar crime.

During the period under review the fiscal branch had 33 police officers across the country, with four border towns having one policeman each, two border towns having two each, and one border town having five. The capital city Lilongwe, where the government headquarters are housed, had only four officers and the commercial city of Blantyre had 19. The small size of the fiscal branch has long been a handicap in the fight against white-collar crime and this is likely to persist in the attempts to combat money laundering.

The Fiscal Police lack capacity in various respects. Mobility is a challenge, as the branch has only one motor vehicle. Most officers require training in the concept and practice of money laundering. Computer literacy is lacking, as is training in basic accounting. Communication is also a problem. Since money laundering is a new phenomenon, Malawi police operatives would benefit from attachment to law enforcement agencies and financial institutions in other countries.

At this stage the fiscal department enjoys good relations with Interpol and the Southern African Regional Police Chiefs Co-operation Organisation (SARPCCO). Within Malawi, interaction with the Reserve Bank , the MRA and the ACB has also been of benefit in fighting white-collar crime in general.

Prosecution structures in Malawi

The constitution provides for the office of the Director of Public Prosecutions (DPP), which has power in any criminal case to institute and undertake criminal proceedings against any person before any court for any offence alleged to have been committed by that person.17 This means that the DPP can prosecute persons involved in money laundering and other offences as codified in the Penal Code. The office of the DPP has problems in that it is not well staffed and is unable to keep up with the number of cases that occur. In addition, many prosecutors are inexperienced. The office directly handles only 10% of prosecutions, with the rest being assigned to police prosecutors. It is important to note that the budget for the DPP’s office has been raised from MWK24 million (US$171,428) in 2004/2005 to MWK69.5 million (US$496,428) for 2005/2006, and MWK95 million (US$678,571) for the 2006/2007 fiscal year.

Former DPP Ishmael Wadi proposed radical changes in the running of the  office, including the hiring of special prosecutors for financial crimes such as money laundering as one way of making the office more effective.

The ACB also has a prosecutions division but this does not have enough lawyers. At the time of writing there were only four lawyers working with the ACB, and it had just lost its director in politically charged circumstances.

The MRA, on the other hand, has strengthened its legal team to prosecute criminal tax cases as one way of tackling an offence intricately connected to money laundering. The DPP has given its consent to lawyers working with the MRA to prosecute criminal matters relating to tax.18

Malawi’s capacity for international co-operation

Legislation on mutual legal assistance exists in the form of the Service of Process and Execution of Judgements Act (Chapter 4:01) and the Evidence by Commissioners Act (Chapter 4:03). This legislation is not comprehensive enough and is confined to two countries, Zimbabwe and Zambia, both of which were once in a colonial federation with Malawi. The application of the legislation needs to be broadened to include other countries, particularly those in the Southern African Development Community (SADC) region with which Malawi has most of its dealings. The legislation is silent on the question of transferring arrested persons from one country to another to assist in investigations, prosecutions or judicial proceedings, including searches and the seizure of the proceeds of foreign crimes that may have been found in Malawi.

The FIU can disclose any information to foreign financial intelligence units, provided there is an agreement or arrangement between the FIU and the foreign state or international organisation regarding the exchange of such information.

In cases where such an agreement or arrangement has not been entered into between the FIU and the foreign state or international organisation or body, the FIU may conditionally share the information it has. The usual condition is that the information must be used for intelligence purposes only and should not be further disclosed without the consent of the FIU.

Malawi is party to various international treaties and protocols on money laundering, terrorist financing and drug trafficking. The principal purpose of the new money laundering law is to activate Malawi’s compliance with her obligations under the various conventions to which the country is party. These are:

• the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988);
  
  

• the SADC Protocol on Combating Illicit Drugs (1996);
  
  

• the United Nations Convention on the Suppression of Financing of Terrorism (1999);
  
  

• the United Nations Convention Against Transnational Organised Crime (2000);
  
  

• United Nations Security Council Resolution 1373 (2001); and
  
  

• the United Nations Convention Against Corruption (2003).

These conventions oblige Malawi to enact laws that criminalise money laundering and the financing of terrorism and enable the country to trace, restrain and ultimately confiscate the proceeds of serious crime as well as money intended to finance terrorism. Since 2004 Malawi has been under extreme pressure to comply with these conventions and is in the process of doing so. The country is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a regional grouping whose object is to combat the laundering of the proceeds of all serious crime and the financing of terrorism.

In March 2005 the governments of Malawi and the United States signed an agreement in terms of which the US Embassy in Malawi would provide a grant of MWK22 million (US$157,142) to the ACB. President Bingu wa Mutharika pledged that the funds would be used to detect and prevent corruption, financial crimes and money laundering. The director of ACB at the time, Gustave Kaliwo, committed the bureau to train 35 people in the investigation of cases involving financial crime and the transfer of public assets stolen from Malawi and kept abroad.

In 2005 Malawi entered into an agreement with the United States Department of the Treasury to access technical assistance advisers in anti-money laundering and the operation of financial intelligence units. An adviser from the Department of the Treasury’s Office of Technical Assistance (OTA) is based at the Reserve Bank of Malawi to provide training and assistance in building systems and capacity to improve the management and protection of Malawi’s financial resources. The adviser is further expected to assist the Reserve Bank to establish and equip a financial intelligence unit, to support Malawi’s amendment of its AML/CFT legislation, and to prepare a national AML/CFT strategic plan in line with the resolutions of the Ministerial Council of ESAAMLG.
The ACB engaged British experts to train its investigators. These experts trained about 20 officers for two weeks in investigative, interviewing and statement-taking skills.19 The United Kingdom is reportedly providing £500,000 (MWK115 million) per year to the ACB,20 a huge sum that is being invested in the fight against corruption.

Conclusion

The AML/CFT strategy, launched in July 2004, is to run until June 2007. There is evidence that this strategy will enable Malawi to establish an effective regime against money laundering. Although progress is slow, the country has endeavoured to attain its goals as laid down in the strategy and as envisaged by ESAAMLG.

Malawi has managed to criminalise money laundering in relation to all serious offences. It has enacted legislation for the confiscation of the proceeds of crime, outlawed anonymous bank accounts, compelled banks to identify customers and to keep financial records for at least five years, and met other obligations as required by ESAAMLG.

The country is still in the process of developing a better understanding of the nature, extent and impact of money laundering and terrorist financing. In this regard more public awareness campaigns are necessary.

A lot of work still needs to be done to facilitate and co-ordinate the provision of technical assistance and training of financial investigators, law enforcement agents, the judiciary, the financial intelligence unit, financial regulatory authorities and financial institutions in order to build capacity to prevent and combat money laundering and terrorist financing.

Notable cases and incidents of money laundering during the period

Because no one has ever been prosecuted for money laundering in Malawi it is strictly inaccurate to describe what follows as a money laundering case study. However, it is based on a real occurrence and reveals one of the many money laundering possibilities. It has conveniently been called the “12 companies case”.

Case study: the 12 companies case

 

Notes

1. The Financial Action Task Force formed in 1989 has spearheaded the global efforts to combat money laundering, and its recommendations are the world standard for effective national anti-money laundering regimes.
   
   

2. The setting up of a financial intelligence unit was first refused by the Minister of Justice and the Minister of Finance, who both argued that it was not necessary in Malawi as fiscal police were already carrying out the activities of such a unit.
   
   

3. Dr B. Muluzi was being accused of diverting MWK1.4 billion (US$10,000,000) of government money into his personal account.
   
   

4. The Banking Act, Chapter 44:01, however, describes a financial institution as a person whose regular business consists of the granting of loans, advances and credit facilities and investing funds by other means and whose business is financed by own or borrowed funds or with funds not acquired by accepting or soliciting deposits from the public. Such institutions include pension funds, insurance companies, investment funds and investment companies.
   
   

5. Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act 2006, section 2.
   
   

6. Banking Act, section 49.
   
   

7. Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act 2006, section 24.
   
   

8. Ibid, section 25.
   
   

9. Ibid, section 26(1).
   
   

10. Banking Act, section 49.
    
    

11. Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act 2006, section 28(1).
    
    

12. Ibid, section 29.
    
    

13. Ibid, section 30.
    
    

14. Ibid, section 32.
    
    

15. The Daily Times, 9 September2005.
    
    

16. The Nation, May 2005.
    
    

17. Constitution of Malawi,section 99(1).
    
    

18. The Daily Times, 28 August 2006.
    
    

19. Juliet Chimwaza in The Nation, 9 May 2006.
    
    

20. The Daily Times, 15 March 2006.