A money laundering afterthought

Even though I have been “baptised” in the profession of national accounts statisticians, certain things   still baffle me.  I am baffled simply because I am human, just like everyone else. The average and normal human being will condemn crime in any form. It doesn’t require some kind of religious affiliation. Crime, such as money laundering is part of our gross domestic product (GDP), a measure of all goods and services produced in the country. It is within the production boundary, a second lesson in Economics 101.

The human side of me questions why services such as crime should be a considerable part of our economy? Of course crime pays. People can build properties, send their kids to good schools and drive the best cars. But at what cost to society?  The cost is quite huge. It may include lives lost through lack of medication in public hospitals. It can also be in terms of  future  productivity losses through average kids that cannot go to school because taxpayers money has gone into undeserving pockets. Their schools may not have adequate teachers or learning materials, unlike kids that have unfairly benefited from stolen taxpayers money, a small minority for that matter.

 For sure, money laundering or fraud, are not factors of production in the economic definition of labour and capital. Accordingly, such vices do not deserve any return in wages, interest or profit, but a full arm of the law to ensure a smooth running economic system.

Now get me right, in the statistical world crime pays. All proceeds of crime constitute a nation’s Gross Domestic Product (GDP). The same applies for all forms of vices such as prostitution and thuggery.  So next time you excite in a high rate of economic growth, have a closer look, as things like money laundering remain an integral part of it. That has been the reality that has confronted me over more than a decade trying to put up numbers into a single measure such as GDP over many countries that gave me a privilege to do such a task.

Now reports abound from the Capital Hill saga of taxpayers’ money being willy-nilly plundered. Such sentiments are not new.  The current justice minister talked about it in his days as a chief prosecution dog. It’s all illegal money. Money from the proceeds of crime is difficult to quantify, but it remains part and parcel of our society. In the wake of weak institutions that not only safeguard property rights, but even ensure that individuals account for their wealth and lifestyles, laundering of funds is rampant. It explains the rampant housing boom in the capital without any finance from the formal banking institutions.

Now consider the many channels that money is laundered. It is interesting that corruption or fraud, eventually breeds more. It can even be a complex web where it is difficult to ascertain the origin,  but we often see the corruption engine in  full motion, its next destination undefined. Housing and real estate is one major sector that laundered money has found its way. One cannot dispute the existence of corruption in institutions like Malawi Housing Corporation (MHC), Lands Ministry and City Assemblies in allocating land to bonafide, law abiding  citizens. We can also acknowledge the existence of traditional land and other localities in urban areas that have been squatted and high value properties have risen, mainly from laundered proceeds. Money laundering is not just a cross-border crime, but very much a domestic cancer that has now grown to malignant levels. It is now a complex web of politicians, businesses, banks, public servants and thousands of errand boys that earn a living through it. It could be costing this country more than the HIV-Malaria interlude.

The trail can be easily connected to the way businesses transact, especially amongst colleagues of foreign origins that run most retail and wholesale businesses to their indigenous surrogates. It is now normal for a high value property built using materials sourced through cash based transactions. These are millions worth of cash, and it simply adds more fuel to facilitate millions of cash-based transactions, a hallmark of money laundering. I would categorise such businesses, normal as the practice looks, as abetting and helping certain individuals commit money laundering crimes. While on the other hand, institutions mandated to stop such activities enjoy their slumber and cheap public stunts after securing successful rogue-vagabond convictions that usually come with a K50 fine.

In reality, it goes back to institutional economics that is founded on the basis of strong enforcement of the law to promote fairness in business dealings.

For instance, there are weaknesses in the VAT law that allow businesses to cut corners. Why would it not become mandatory that transactions of at-least K500 000 (US$1 351)be paid  electronically? Essentially any business registered to pay VAT, should be obliged to have Point of  Sale (POS) installed in their shops. It sounds like a crazy idea, but a practical one that will make any individual think twice before they decide to invest stolen taxpayers money.  Authorities should be in a position to undertake audits of all real estates, especially in urban centres and establish the owners. More time can then be spent to track lifestyle audits as well as wealth hidden outside the banking system, including private farms in the outskirts.

One possible area is the institution of the Malawi Stock Exchange (MSE). I can simply walk into a broker and buy shares or the very government treasury bills with millions in cash of stolen money  from treasury and buy that stock investors are desperately trying to dispose of non-performing stocks. The average stock broker, with a very shallow financial market is for sure looking  for a potential client to make up for their tight margins, pay rents and staff.  Yes, the temptation is there because in some instances the stock market can go without registering a trade in a single day.

My final question to the banks, including  ones that froze accounts  of many average Malawians for not updating their records. Do you know all your customers?