Malawi is sitting on stacks of dirty or laundered money in its financial system or outside the formal financial system, and monetary authorities are aware of this teething problem.
The magnitude of money laundering or ill-gotten money could be difficult to ascertain as this offence remains complex in nature, even across Malawi borders.
But at least one thing is clear: the country, just like many other countries in Africa, is prone and is to some extent a conduit for money laundering and terrorist financing.
Local anti-money laundering experts say that Cashgate-the plunder of public resources at Capital Hill discovered in 2013-is a very good example of the complexity of money laundering cases in Malawi. More than K24 billion was stolen and a huge chunk of these funds were laundered.
By definition, money laundering is any act or attempted act to conceal or the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.
Some experts say this is as an act of ‘making dirty money clean.’ They base their simple definition by the fact that money which is already clean can never be laundered.
Here is a simple analogy: One cannot take clothes that are already clean to a laundry, unless if or she is insane.
But why launder dirty money?
The quick answer is that it enables criminals to enjoy their illicit proceeds disguising the fact that the money was acquired by illegally.
But from the Financial Intelligence Authority (FIA) point of view, launderers are worried about being linked to the money and eventually the crime and that the proceeds will be seized.
Perhaps the gravity of the problem of money laundering in Malawi could also be looked from the perspective of the country’s enactment of the Money Laundering, Proceeds of Serious Crimes and Terrorist Financing Act which established the now defunct Financial Intelligence Unit (FIU) in 2016.
In 2017, of course this Act was repealed and replaced by the Financial Intelligence Crimes Act which changed the name FIU to FIA.
Legitimate versus illegitimate source of money
A recent stakeholder’s meeting held in Lilongwe, aimed at discussing the Financial Crimes Act (FCA) for the real sector, brought to light legitimate and illegitimate sources of money that currently enshroud Malawi economy.
Main source of clean money include salaries, prizes from competitions, inheritance, insurance policy, interest from banks, proceeds from legitimate business, sale of farm produce, legitimate fundraising, among others.
On one hand, common sources of illicit money in Malawi, just like other affected countries, include drug trafficking, bribery and corruption, extortion, fraud, robbery, kidnapping, human trafficking, smuggling (arms, people or goods), counterfeiting, forgery, tax evasion, among others.
The Lilongwe meeting put into perspective also the three stages of money laundering, and on this one, FIA Director of Compliance and Prevention Anita Mankhambo was very candid.
They include placement, layering and integration. It is during placement when the illicit funds are physically placed in the financial institution, while layering involves the transferring or wiring of the funds between domestic and foreign accounts.
The complexity of such transactions reaches its climax during integration where the launders invest such dirt funds into the real estate sector, luxury automobiles or invest in security markets. This is simply done to conceal evidence.
“The laundered proceeds may be put back into the economy in such a way that they re-enter the financial system appearing as normal business transactions,” said Mankhambo when clarifying on what exactly happen during integration stage.
However, it is during layering stage where these clandestine wrongdoers create complex networks/layers of transactions in order to create a distance between the criminal funds and the transaction.
“This involves electronic movement of funds from one country to another dividing them into advanced financial options and or markets .They can disguise transfer as payments for goods or services. It can also involve the transferring of the illicit funds to front or shell companies or even Non-Governmental Organisations,” Mankhambo explained.
An easy prey that is real estate sector
Malawi conducted its second National Risk Assessment (NRA) to assess its money laundering and terrorism financing risks from mid-2017 to May 2018.The assessment was conducted in all sectors which are obligated to prevent money laundering.
From the findings of this assessment, it is estimated that FIA identified an estimated $17,010,112.72 (about K13 billion) between 2013 and 2017 due to money laundering offenses.
The most money-laundering related offenses that were investigated during the period under review are corruption, fraud, tax crimes, smuggling, wildlife offenses, illegal externalization of foreign exchange, trailed by illegal logging, drug trafficking and human trafficking.
“There was also huge plunder of public funds through the bogus contracts involving private businesses and civil servants popularly referred to as Cashgate,” revealed the assessment.
Interestingly, the assessment found corruption-related proceeds are posing a high money laundering threat to Malawi, although the number of identified and investigated money laundering cases may not give an accurate and full-scale picture of the threat.
But worth revealing is the fact that the real estate sector was the most vulnerable sector to money laundering, trailed by banking sector, money remitters, foreign exchange bureaus, securities, insurance industry, mobile payments, lawyers, casinos, accountants, dealers in precious metals, NGOs and microfinance institutions.
Overall, the assessment has shown that while the risk of terrorism financing is low in Malawi, that of money laundering is still medium to high.
Simply put, the real estate sector poses the highest risk when it comes to money laundering in Malawi and this explains why more launderers found real estate sector as an prey to launder their dirty money.
Money laundering experts dissect that the real estate sector remains an attractive channel for laundering illicit funds because of several factors.
“First, real estate can be bought with cash and this cash can be dirty cash. Second, it is easy to disguise ultimate beneficial ownership of the property bought and thirdly, the value of investments in real estate sector may be increased through renovations and improvements,” says FIA Director General Atuweni Agbermodji.
To make matters even worse, Malawi is awash with unregistered and unlicensed real estate agents.
“These pose a threat of money laundering and terrorist financing, and if left uncontrolled, the damage caused could be enormous,” muses Jean Kalilani, Minister of Lands, Housing and Urban Development.
The economic dark side
By its very nature, money laundering occurs outside the sphere of normal range of economic statistics and this means that it is difficult to quantify the losses emanating from money laundering. There are no statistics for Malawi, FIA insists.
But last year, it was revealed in one of the fora that the country lost a staggering K14 billion in 2017 alone through money laundering. Most of this money was said to have been laundered through illegal externalisation of foreign currency.
The Reserve Bank of Malawi (RBM) Governor himself Dalitso Kabambe recently estimated that current money laundering cases in the courts alone account for a loss of over 30 billion kwacha in externalised foreign currency.
But for a country that is desperate for foreign currency, such a leakage in form of money laundering has a dent on our foreign exchange market and if left unchecked, could inherently affect the supply and demand for foreign currency.
Simple mathematics shows that K30 billion (about $41 million) represents about 20 percent of Malawi’s foreign monthly foreign currency consumption or monthly import cover for Malawi, estimated at $209 RBM. Tellingly, that is a substantial loss to the country’s official foreign exchange market.
But since by nature, money laundering is a complex under-dealing, Malawi’s loss as a result of such misconduct could be colossal as share of the country’s total wealth as measured by Gross Domestic Product (GDP) and is also a monster to Malawi’s Balance of Payment (BOP) position.
The United Nations Office on Drugs and Crime (UNODC) estimated that criminal, especially drug traffickers may have laundered around $1.6trillion or 2.7 per cent of global GDP in 2009.
Touching on economic effects of money laundering, FIA’s Mankhambo says money laundering is undermining legitimate private sector as use of front companies provides an unfair advantage over legitimate companies let alone distorting investments.
The malpractice, to her, also brings about economic distortions as money laundered which is disguised in the name of investments has no real economic benefit.
“It [money laundering] affects overall tax revenue while increasing reputational risks of countries, financial institutions, and businesses or professions,” she said.
On one hand, Minister Kalilani says researchers and politicians increasingly consider that the real estate market in Malawi plays a decisive role in the transmission of monetary policy impulses and as such, dirty money has a huge bearing on monetary policy effectiveness in the country.
Legal and Judicial perspective
High Court Judge Chifundo Kachale also agrees that it is a tall order for judiciary to preside over cases involving money laundering.
“The concealment of the illegally obtained proceeds makes money laundering cases to be complex and time consuming for both the law enforcement agencies who investigate and prosecute the cases and the courts who determine the cases or charges to be answered and judgments to be passed regarding conviction and sentencing,” he said last week.
But the judge is looking forward with positivity, banking hopes on the Financial Crimes Act of 2017, which he says criminalizes money laundering and other financial crimes, and has a number of provisions aimed at ensuring that such ill-gotten proceeds are seized and confiscated from the suspects and convicts.
On one hand, the country legal system is also to blame for fueling money laundering, especially in the real estate sector. Most of the unlicensed real estate agents have got companies registered by the Registrar of Companies and with that they feel empowered to operate their businesses.
There is a law in Malawi which requires real estate agents to have a graduate degree and be licensed but this is not followed in Malawi.
On a positive note, it is pleasing to note that Malawi has gained international credibility from the quality of its Financial Crimes Act of 2017, which mandates that the leader of FIA is appointed by merit, among other stipulations.
And in the same law, there is also provision for civil recovery of the proceeds of crime and greater maximum sentences for money launderers and on this one, Malawi’s development partner, the United Kingdom (UK) hopes will speed up turn-around times for cases and create stronger deterrents for criminals.
Head of Country Office for the Department for International Development (DFID) in Malawi David Beer- whose institution supported the assessment through its partner, the International Center for Asset Recovery-believes that confiscating stolen assets has a much bigger deterrent on criminals ‘than jail time alone.
“This is money that is forever lost from the economy, that could have driven growth and been used to help maintain hospitals, schools and roads,” said Beer during the launch of the NRA.
Malawi now has a Confiscation Fund which is being administered by FIA on behalf of the Minister of Finance, Economic Planning and Development. FIA can only draw money from this fund to further enhance its fight against money laundering and terrorist financing after approval from Parliament.
Just last week, FIA revealed that the institution has so far recovered about K100 million from proceeds from money laundering but seemingly this is just a drop in the ocean.
But the more the confiscation fund grows bigger and bigger, that will be a reflection of the depth and seriousness of money laundering in Malawi, and of course a reflection of how the country is fairing in terms fighting the vice.