Weak controls over Malawi’s banking system and delays in prosecuting cases when money-laundering has been discovered are allowing foreign companies, including some Indian ones, to take millions of dollars out of the country illegally and with impunity, according to court documents and interviews with experts and officials.
“Malawi has become a haven for foreign criminals, masquerading as foreign investors, because it is easy to siphon forex. They have realized that they can beat the system and use corrupt bank officials and get away with their criminal behaviors because enforcement agencies are equally weak,” renowned economic and political commentator Lowani Mtonga noted.
The development means the country is failing to tame the vice despite the existence of state organs such as the Reserve Bank of Malawi, the Malawi Revenue Authority, the Anti-Corruption Bureau, the Director of Public Prosecutions, the Financial Intelligence Authority (FIA) and the Malawi Police Service, whose mandates among others things is to tackle financial crimes in the country.
Their failure to act is because of a heated turf battle which is also taking long to resolve and the Malawi government seem reluctant to intervene.
“Why not prosecute the perpetrators including the banks and their officers? What are they fearing and who are they protecting?” Mtonga queried.
Since 2012 the Malawi government has been struggling to balance its books. As of December 2017, public debt stood at approximately USD 3 billion.
Moreover, in the past 10 years up to December 2017, the government spent USD 171 million in servicing debt. In the capture of banking system and financial institutions, it has been discovered that between January and November 2017, the Finance Intelligence Authority (FIA) uncovered 63 unsupported forex transactions worth US$7.4 million (approximately K5.4 billion), remitted without imports being returned into Malawi, according to information from the Reserve Bank of Malawi (RBM) and the FIA itself.
Finance Intelligence Authority Director General Atuweni-Juwayeyi Agbermodji explained the money laundering scheme in detail.
“The requests for funds transfers are mostly supported by forged or fake Customs importation documents with the aim of getting around with Exchange Control Regulations. It has, however, also been noted that some are conniving with some officers of financial institutions to remit the funds without any supporting documents which is against Exchange Control Regulations.
“The perpetrators abandon their accounts with one bank after making several of such transactions and open accounts at other banks using a different business name. The suspects have been moving from one bank to another to find opportunity to remit funds,” she said.
Malawi has a generally sound banking sector, overseen and regulated by the Reserve Bank of Malawi — the central bank. There are ten full-service commercial banks. The three largest banks — National Bank of Malawi, Standard Bank, and FDH Bank — collectively command almost 70% of all banking deposits.
Despite having evidence of crime at its finger tips, FIA has chosen to take a lukewarm approach to the vice by issuing cautions.
“Members of the general public are being warned that being used by unscrupulous businesses to facilitate money laundering will lead them to facing charges under the FCA and other applicable laws. Over and above that, such individuals and businesses risk having their assets seized by law enforcement agencies,” the FIA said in terse press statement.
Surprisingly, to the banking system and financial system, the FIA merely advises them to be extra cautious.
“Banks and other deposit-taking institutions should take note of this syndicate and should categorize such customers as high risk and consider terminating such relationship to avoid being used as conduits for money laundering.
“Banks and other deposit-taking institutions are obligated to report as suspicious such transaction in line with Section 23 of the Financial Crimes Act and should take note of the penalties applicable for failure to report,” it said
But Institute of Bankers in Malawi CEO Lyness Nkungula said given that financial institutions play such a pivotal role in the world of financial crime, it is important that they are properly trained on how to identify and handle money laundering.
“With financial crime more prevalent than ever, it is important that both companies and governments develop tactics to curb it. Probably the most common way of doing so is to implement anti-money laundering policies that prevent the smuggling of illegally-obtained funds,” Nkungula said.
Both Reserve Bank of Malawi and the Finance Intelligence Authority have evidence that huge sums of illicit funds are possibly being laundered using the Malawian banking system under the disguise of import payments being made by what appears to be legitimate businesses.
“These businesses make huge cash deposits followed by immediate requests for funds transfer to firms in various jurisdictions including China, Dubai, India and Hong Kong. The requests for funds transfers are mostly supported by forged or fake Customs importation documents with the aim of getting around with Exchange Control Regulations,” Finance Intelligence Authority Director General Atuweni-Juwayeyi Agbermodji said.
And in unresolved cases at the Malawi High Court dating back to 2014, 13 Indian owned companies allegedly externalized $4 million in eight separate transactions. Indian companies have long played an important role in Malawi’s business world and now control about 60 percent of the economy through various companies ranging from manufacturing to banks and hotels.
The cases against the 13 Indian companies are known because they have been brought to court by the RBM and FIA.
Broadly, the offences involve the making and use of false documents and deceptions by persons applying for permission to remit abroad large sums of foreign currency.
The companies and individuals are: AMAD, M R – Intertrade Agency and Mozimpex, USMAN, S and BILAL, S – Hasbro Ltd and Verizon, ARIF, M – Noor General Distributors and TS Distributors, RAZZAQ/RAZAQ, M and MANJARA, A S I – Zam Zam Import & Export , GANI, S G and RAZA, N – Premium Commodity Traders Fawa Products; Tarar Enterprises Hong Kong: Vic Charm Ltd, RAWANI, S S [FRS Co Ltd; BT Trading Co; Al Johara; Nantong Junlove Int; HK Polymers], Musa Kariam Ibrahiam of Zambezia Traders, Karamat Ullah Chaudhry and Naeen M. Iqbal.
For instance, Mahomed Rafiq Amad Managing Director of Intertrade Agency faces nine counts involving the externalization of a total of US$2,058,000.
They have pleaded not guilty, according to court documents.
Contacted by phone for comment, they declined to comment, saying they matter is being handled by the court system.
Under count one, Amad is alleged to have used a Customs Declaration Form Number C80 of 31/08/13 of Chiponde Border valued at US$768,000.00, in support of an application made to CDH Investment Bank for remittance of the said sum of VIC CHARM LIMITED of Hong Kong, purportedly to pre-clear 4,500 Metric Tonnes imported Cotton seed, when in actual fact no such importation was ever made, thereby fraudulently externalization the said US$768,000.00 from Malawi.
It is also alleged that on or about the 2nd day of September, 2013 at CDH Investment Bank in the City of Blantyre, Amad was in possession of US$720,000.00 which he knew or had reason to believe represented, in whole or in part, directly or indirectly, the proceeds of illegally obtained foreign currency.
It is also alleged that on or about the 7th day of October, 2010 at CDH Investment Bank in the City of Blantyre using Account Number 0020135092200 and Account Name Intertrade Agency obtained foreign currency amounting to US$570,000.00 for the purpose of payment of goods imported, namely, cotton seeds from Mozimpex of Mozambique, when in fact no such goods were imported.
Similarly, two other Indians, Karamat Ullah Chaudhry and Lakhu Mohamed Naeem M Iqbal face 13 counts ranging from forgery of official documents, making a false document without authority, uttering a false document to illegally obtaining foreign currency.
They could not be reached for comment, but have pleaded not guilty. Court documents allege that the duo on five separate occasions externalized a total of $1.6 million. Director of Public Prosecutions (DPP) Mary Kachale certified in the certificates of summary procedure trial criminal case number 824 of 2014 and Criminal Case Number 234 of 2011 that the cases were proper for trial by the High Court as summary procedure cases.
To date nothing has happened. Court processes are notoriously slow in Malawi and the Director of Publications has the power to decide which cases should be prosecuted first.
Asked about the delay in bringing the cases to court, Masautso Ebere, Finance Intelligence Authority, Compliance Manager & Spokesperson for the FIA, said by email: “In line with Section 10 of the Financial Crimes Act, the Financial Intelligence Authority cannot disclose names of individuals or business entities under its analysis. Should there be developments requiring prosecution of the individuals and firms under our analysis, the media and the public will be informed as it shall then be worthy sharing with the public.”
Economist Henry Kachaje says the malpractices points to a country in economic problems.
“I think in a free economy where people should be able to access foreign currency and then be able to bring back whatever proceeds they have, cases of externalization would not be so common,” Kachaje said.
Malawi President Peter Mutharika, who is seeking reelection in 2019, thinks the country’s economy is on a right trajectory.
“With the state of our economy, our business community find it easier to access forex for smooth cross-border trade. This year, we will do more to collect more revenue and deliver more services,” Mutharika said when he opened the 2018/2019 Budget session of Parliament in May this year.
Think Tanks think otherwise.
“Government needs to systematically and urgently continue pursuing the quest for making economic independence a reality, through the much-enhanced domestic resource mobilization, rationalize revenue collection and prudent resource utilization,” Dalitso Kubalasa, Executive Director, Malawi Economic Justice Network (MEJN), told local media this week.
- This story was produced by the Centre for Investigative Journalism Malawi (http://investigative-malawi.com). It was written as part of Wealth of Nations, a pan-African media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org