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Money laundering gaps exposed

Malawi is not winning the fight against money laundering, with the central and commercial banks being accused of laxity, according to a recent stakeholders’ meeting.

As a result of the control gaps, criminals are defrauding the country of its scarce forex reserves and the Financial Intelligence Unit (FIU), which polices suspicious transactions, appears helpless.

The situation has become so serious that a meeting of leading institutions in the money laundering fight on August 7 2012 resolved to start prosecuting bank executives or banks themselves to show how far government is ready to go to deal with the malpractice in the financial industry.

The meeting, minutes of which we have seen, was convened by Director of Public Prosecutions (DPP) Bruno Kalemba.

Interviews with industry players and a review of the minutes also show that most banks do not rigorously apply the Know-Your-Client rule on deep-pocketed clients, a blind eye that helps some customers to siphon huge sums of forex out of a country constantly in currency shortage crises.

The meeting also noted that most banks are not strictly adhering to the Money Laundering, Proceeds of Serious Crimes and Terrorist Financing Act by, among other things, failing to report suspicious transactions to the FIU.

“…Commercial banks usually keep suspicious transactions under the carpet mainly because they involve their big clients…Perhaps administrative penalties would force the banks to report suspicious transactions to FIU as required by the Money Laundering Act,” says the minutes.

The August 7 meeting resolved that one or two directors of the banks or the banks themselves should face prosecutions “in light of the serious malpractices which the concerned banks are engaged in”. But no director has so far been arrested.

The meeting also noted that the Ministry of Justice (MoJ) is frustrated with the commercial banks’ inability to furnish it with CCTV’s footage in order to trace persons who deposit and redeposit illegal money.

According to FIU, banks are supposed to keep CCTV footage for seven years and if they fail to release the material within this period, they violate money laundering laws and are criminally liable.

Suspicious transactions

A financial market source said in an interview: “Some transactions are supposed to raise alarm bells in banks immediately. There are times when a customer deposits billions of Malawi kwacha in the morning and then in the afternoon, an instruction is given to the bank for remittances of foreign currency to countries such as Pakistan, Britain, the United States and Hong Kong. Yet, banks do not alert the FIU. Why?”

An MoJ source also said earlier this year, former Reserve Bank of Malawi (RBM) governor Perks Ligoya recommended that the American Embassy be informed about certain illegal forex externalisations as it was strongly felt within the prosecuting community and regulators that the money could be funding terrorism in some parts of the world.

The meeting was also told that some money launderers forge Malawi Revenue Authority (MRA) documentation and present them to local banks for payment to non-existent or ghost imports.

RBM role in prosecution

The current RBM Governor Charles Chuka, a staunch believer of free markets, was said to be against the bank’s active participation in prosecution of money laundering suspects, according to the minutes.

“….There appears to be a paradigm shift with the coming in of the new governor who, by his training and experience, adopts a liberal approach to issues involving foreign currency and counterfeit notes…The new governor does not subscribe to the idea that we [RBM] should be actively involved in the prosecution of financial crimes. [He] believes that we should leave prosecution to those who are mandated to prosecute,” the minutes quote a senior RBM official.

The implication of this policy shift, according to the minutes, is that RBM would no longer be supporting cash-strapped police and MoJ lawyers with financial and human resources for the prosecution of foreign currency cases as before.

The RBM actually hired an experienced former MoJ prosecutor, Thabo Chakaka Nyirenda, to track down suspects involved in illegal dealings in foreign currency and counterfeit banknotes.

The minutes quote senior MoJ prosecutors as fearing that should financial criminals hear about such a “liberal” approach to illegal forex externalisation, it could encourage them to do further damage, in a manner similar to the way government’s recent ban on the “Shoot to Kill” policy led to increased crime.

The meeting mandated Kalemba to take up the matter with RBM authorities before it is too late.

But in an e-mail response to our inquiry, RBM spokesperson Ralph Tseka did not address this aspect and instead insisted the central bank does not prosecute financial crimes.

“Let me emphasise that issues of financial crimes are dealt with by FIU. Before FIU came on the scene, RBM would do the prosecution. If RBM noticed any strange transactions, they are referred to FIU for full investigation,” said Tseka last week.

Some RBM officials were quoted as saying their Bank Supervision Department “has never referred suspicious transactions it comes across during its routine supervision to the FIU or prosecutors even though such transactions are detected on routine basis.”

The RBM is also blamed for laxity in scrutinising forex applications; something commercial banks argue is not their primary responsibility.

Reads the minutes: “The lawyers explained that commercial banks argued that [RBM] is the one that grants the ultimate approval to remit foreign currency and that any irregularities in the applications are supposed to be detected by the Reserve Bank and not the commercial banks who merely redirect the applications to the Reserve Bank.”

MoJ spokesperson Apoche Itimu said all players in the financial crimes fight are doing their best despite some challenges and “we believe they are taking steps to overcome those challenges.”

She said the objective of the August 7 meeting was for the DPP to acquaint himself with stakeholders as he was newly appointed, not necessarily to discuss financial crimes.

But the minutes specifically say the purpose of the meeting was to discuss the manner in which financial crimes should be handled following the State’s bungling of a K1.2 billion (about $4 million) illegal foreign currency case currently in court.

Financial Intelligence Unit’s role

In an e-mail interview last week, FIU head Atuweni Phiri said: “The Money Laundering Act imposes reporting obligations, ‘Know your Client’ and record-keeping on reporting institutions, supervisory authorities and auditors. It also requires reporting institutions to develop and implement internal rules to facilitate compliance with these obligations.

“Our duty under the Act when we come across such information is to provide it to RBM who are supervisors of banks as well as the Director of Public Prosecutions. The RBM may on assessment of the issue, administer some form of administrative penalties, while the DPP may decide to prosecute the bank and its directors for being accomplices to money laundering, which carries a penalty of 10 years imprisonment and a fine of K2 000 000 for an individual and K10 000 000 and loss of business authority for a corporation.”

Bankers association on the defensive

Bankers Association of Malawi (BAM) executive director Lyness Nkungula argued there is enough coordination among stakeholders to ensure an effective fight against money laundering.

Asked how often commercial banks report suspicious transactions to FIU, Nkungula said reporting is done as and when there is reasonable ground to suspect that a transaction is linked to commission of a money laundering offence.

“These are reported within three days from the day an opinion has been formed. Large transactions are reported on weekly basis,” she said.

BAM president William Chatsala said in another e-mailed response to a questionnaire that the banker/customer relationship is contractual and banks owe a strict duty of confidentiality to their customers.

But Chatsala said there are circumstances under which banks can divulge information on their clients and the Anti-Money Laundering Act has clear provisions on this.

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