Malawi Government is yet to adhere to a recommendation by Baker Tilly to investigate the roles of commercial banks in the Cashgate scandal as regulatory and investigative agencies keep ducking and diving on the matter.
The UK-based auditors recommended that regulatory authorities investigate the role of the commercial banks in the scandal but no investigation has been instituted so far.
The regulator and registrar of commercial banks, the Reserve Bank of Malawi (RBM), says the auditors were not specific in their recommendation for investigations to warrant its action.
In the audit report, Baker Tilly observed instances of “significant control failures” among the banks and asked the authorities to investigate their roles in the scandal.
“The relevant regulatory authorities should investigate the role of the banks in these cases to assess whether it would have been reasonable to expect the banks to raise concerns at the very large sums of money being deposited and then withdrawn.
“If it is concluded that the banks had not acted in accordance with banking norms and related legislation, appropriate action should be taken,” reads the auditors’ statement released in February 2014.
The auditors also observed that some banks manipulated internal mechanisms such as paywalls and passwords to facilitate payment of huge amounts of money and found that the withdrawal of large sums of cash and the resources required to transport such large sums should have raised suspicions among bank staff.
The auditors add that they would have expected advance requests for cash to be made to the RBM, “as we understand the amounts withdrawn would have led to some branches exceeding their daily insurance limits”.
According to the audit report, looting reached fever pitch between August 30 and September 6 2013, when K2.3-billion was withdrawn, amounting to 32 percent of the total withdrawals and over K800 million was cashed on a single day, September 5.
While no bank has been punished for its role in Cashgate, the Anti-Corruption Bureau spokesperson Egrita Ndala said the bureau was continuing with investigations into the scandal.
“The investigation process looks at various dimensions of the case. The bureau cannot discuss the findings of its investigations as doing so may jeopardise the process,” she said.
RBM spokesperson Mbane Ngwira, on the other hand, said the regulations that the auditors highlighted in the report were mostly criminal and were not specific regulations that RBM set for the banks.
“The regulations were not specific, so it was difficult for the RBM to punish banks because the said violations did not indicate the regulations they violated,” Ngwira said.
Treasury spokesperson Nations Msowoya defended the banks, saying they followed procedures but that it was officers from the Accountant General’s office who were authorising the payment of the cheques.
“Banks were checking all the government cheques. Officers at Accountant General central payment office, who were the signatories, were the ones who were confirming the payment
“Remember all Cashgate cheques had all the supporting documents.” he said.
A number of officers of the Accountant General were interdicted for their roles in the scandal and some have been convicted.
Economic Association of Malawi (Ecama) said the commercial banks’ culpability would depend on whether they did not follow the industry code of conduct.
“RBM operates by banking policies and the RBM Act, thus cannot make any decisions that override such Acts as they are binding by law.
“These laws are made in the interest of the national economy and are supposed to be in-line with economic policies of government.
“However, as is the case with many sectors, many Acts have not been amended to suit changing local and global economic environments,” reads the email response from Ecama economist, Mervis Maliketi.
In an email response, money laundering expert Jai Banda lamented the stand taken by the central bank.
“RBM has a role to regulate the financial institutions. If RBM is not disciplining the banks, then it is failing in its role as a regulatory institution. It is important that RBM promote sound corporate governance principles to enhance the fight against money laundering,” said Banda, who is also a lawyer.
He said the Money Laundering Act was explicit on the role of the commercial banks.
“I am of the view the commercial banks violated their obligations as required by the Act. Measures to combat money laundering are contained in both the Banking Act (Chapter 44:01) and the Money Laundering Proceeds of Serious Crime and Terrorist Financing Act 2006,” observed Banda.
He said the banks also appear not to have followed the “know your customer” principles, adding that having sufficient information about a customer/client underpins all anti-money laundering procedures.
“Honestly, on the accounts from which all the huge sums were being withdrawn, the banks should have asked themselves whether this had been the trend hitherto.
“The banks also violated the Act by not taking reasonable measures to ascertain the procedures of the transaction which were before them, the origin and ultimate destination of the funds involved and the identities, address of the ultimate beneficiaries and communicate its findings to the Financial Intelligence Unit (FIU).
“There was a need for the banks to be vigilant to the transactions which were “not in keeping with their customer’s profile”. Surely with the large cash payments involved these should have been treated as suspicious transactions and reported to the FIU,” he said.
FIU—which is mandated to receive, request and analyse financial information which it receives from financial institutions that include banks—said the responsibility of determining whether a bank has flouted regulations, and meting out an administrative penalty in case of non-compliance, lies with RBM.
“Criminal penalties are provided for in the Money Laundering Act, and their administration is the responsibility of the Director of Public Prosecutions,” said Masautso Ebere, FIU’s team leader for compliance and public relations.
“The FIU’s mandate does not extend to following cash withdrawals, this is an investigative task which is the mandate of law enforcement agencies,” he said.
The Bankers Association of Malawi would not respond to the questions put to them on why there are no investigations and punishments to the banks.
Cashgate was a financial scandal in which K24 billion was siphoned from government accounts.
Government appointed Baker Tilly, with the financial assistance of the British government, with brief to conduct a forensic audit of government accounts for a six-month period from April to September 2013.
The auditors discovered that K24 billion of public funds had been abused systemically through the manipulation of information systems.
While a number of public officers and politicians have been arrested and convicted, some cases are still pending in the courts.