Two Pakistani brothers defrauded Malawi Banks of US$25 million

The High Court hearing the fraud case involving two Pakistani brothers doing business in Malawi as Cotton Ginners Africa Limited (CGAL), accused of swindling commercial banks of US$25 million (MK20 billion) through bank loans has adjourned to 28th January 2022  for initial ruling on an application.

Abdullah and Rizwana Rehman pleaded with judge Sylvester Kalembera to strike off Export Development Fund (EDF) from the list of defrauded banks because it did not possess a banking license when it made the US$5 million (MK4 billion) loan.

Dr Kayuni fighting “fraudsters” in court

EDF is a division of the Reserve Bank of Malawi (RBM), established in 2012 during the Bingu wa Mutharika regime to help boost Malawi’s export potential.

In a preliminary application Abdul and Rizwana, first and second accused respectively, argue that EDF had no legal mandate to lend money in 2016 because it was not registered at the time it extended the loan to Cotton Ginners Africa Limited.

The two were directors at Cotton Ginners Africa Limited and in February, 2018 they wanted their company declared bankrupt.

But High Court of Malawi Commercial Division Judge Michael Mtambo declined to declare bankrupt Cotton Ginners Africa following the accused persons’ application.

The ruling meant the commercial banks were at liberty to sell the company’s assets which were valued at US$10 million (K10 billion).

It emerged in court that in 2018 Cotton Ginners Africa total liabilities stood at US$29 million (K23.6 billion) against US$12.5 million (K10 billion) assets. Thus, the company required US$16 million (K13.2 billion) to return to solvency.

In the US$25 million (K20 billion) fraud case, Cotton Ginners borrowed US$10.5 million (K8.5 billion) from Standard Bank Malawi plc, US$5 million (K4 billion) from EDF, US$4.1 million (K3.4 billion) from Ecobank Malawi Limited, US$5.4 million (K4.4 billion) from CDH Investment Bank Limited and US$307,000 (K250 million) from National Bank of Malawi plc.

Abdullah Rehman and Rizwana Rehman alongside seven other accused persons are suspected to have defrauded EDF and the commercial banks through loans obtained in 2016.

The State through Director of Public Prosecutions Steven Kayuni asked the court to dismiss the application of removing EDF from the list in its entirety.

Kalembera, who heard the matter in Chambers on Thursday, January 6, 2022, directed parties to the case to file their final written submissions by January 19, 2022, and said he would make a ruling on January 28.

The alleged fraudsters’ lawyer, Fostino Maele, submitted that his clients noted EDF was only issued an operating licence on September 20, 2021, three weeks after RBM Governor Wilson Banda told Public Accounts Committee of Parliament that EDF had no licence during the past nine years of its operations.

“Under the Financial Services Act, it is a criminal offence for any person to operate a financial institution or offer any financial service without the requisite licence.

“The contract between EDF and CGAL [Cotton Ginners Africa Limited] for EDF to lend money to CGAL was blatant violation of a clear statutory prohibition which prohibits any person from offering financial services without the requisite licence.

“The contract between EDF and CGAL was, therefore, illegal and basically unenforceable at law,” reads the application.

However, Kayuni said the State has asked the court to dismiss the application because the issues raised in the application do not fall within the provisions that can influence a court to throw out a case.

“The law prescribes that there is a way and procedure that a trial can be dismissed. We will wait for the honourable court to make its decision on how the matter proceeds,” Kayuni said.

Abdullah and others are answering charges of conspiracy to defraud, obtaining credit by false pretences, fraudulent trading by a company and money laundering.

Abdullah, a Pakistan national, was brought into the country on September 19 2017 and was arrested immediately after landing at Chileka International Airport in Blantyre.

Malawi Police Service Fiscal and Fraud Section interrogated him for hours before the court declined to hear his bail application at the time.

In a move to recover their money and save their reputation, the local banks teamed up to object the bankruptcy application remaining directors of Cotton Ginners filed at the High Court’s Commercial Court Division in Blantyre.

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