BY LEARNMORE NYAMUDZANGA
Over the past three decades there has been increasing global interest in financial crimes, especially in developed countries.
It is estimated that US$800 billion to US$2 trillion or 2-5% of global GDP is laundered annually.
On April 6, 2022 I was privileged to present during the second annual conference of the Global South Dialogue on Economic Crime.
The conference was an interdisciplinary platform that advanced dialogue, research, and capacity on economic and financial crimes focusing on “Errors in Transplantation and Unintended Consequences of Global AML Standards.”
Among the participants were experts, researchers, policymakers, enforcement officers, bankers and governments officials who were proposing practical, innovative, and research-oriented solutions.
As usual developed countries (Global North) especially the G7 continue to dominate in coming up with opinions, policies and possible solutions to deal with money laundering (ML), which are being adapted by developing countries.
What is money laundering?
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It is the channelling of cash or other funds generated from illegal activities through legitimate financial institutions and businesses to conceal the original illicit source of such funds.
In short it is just a way of cleaning dirty money from illegal activities.
We are talking about funds from offences like drugs, arms and human trafficking; tax evasion (illicit financial flows); corruption; piracy; murder; robberies and minerals smuggling just to mention a few.
Zimbabwe and FATF recommendations
Zimbabwe is a signatory to a number of protocols on anti-money laundering (AML) such as Financial Action Task Force (FATF) standards, as such it has a legal obligation to adopt national legislation to combat money laundering and the financing of terrorism.
Captivatingly, FATF was founded by the G7 in April 1990, came up with 40 recommendations known as FATF standards which now have global reach.
Zimbabwe is a member of Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), one of the eight international FATF Style Regional bodies.
Zimbabwe’s first evaluation was done in 2007, since then it has received several mutual evaluation reports (MERs) and follow ups reports (FURs) the latest being the 7th Follow up Report in April 2021.
Zimbabwe has a relatively sound AML legal framework established through the Money Laundering and Proceeds of Crime Act (Chapter 9:24).
Interestingly, the president vowed to take a hard line on corruption and criminal activities.
This resonates well with FATF, a policy-making body that generates the necessary political will to bring about national legislative and regulatory reforms in these areas.
So if the president is to walk the talk then we are in the right direction.
The 2016 mutual evaluation report noted deficiencies which automatically qualified Zimbabwe to be placed under FATF increased monitoring process (Greylist) in 2019.
Since then Zimbabwe have made several amendments to comply with FATF recommendations including amending the Money Laundering and Proceeds of Crime Act in 2018.
There was also SI 246 of 2018 (Amendment of Money Laundering and Proceeds of Crime Act and Exchange Control Act) Regulations, to regulate unexplained wealth worth more than US$10 000.
We now have a new Companies and Other Business Entities Act [Chapter 24:31] of 2019 which covers beneficial ownership issues.
In 2020, Zimbabwe also launched a National Policy on Anti-Money Laundering and Combating Terrorist Financing.
Right now we have the controversial Private Voluntary Organisations Amendment Bill (Chapter 17:05) which was gazetted on November 5, 2021.
AML role players
The Financial Intelligence Unit (FIU) is the main regulator which operates under the Reserve bank of Zimbabwe (RBZ).
Other relevant role-players include: The Zimbabwe Revenue Authority (Zimra) which focus on tax evasion; National Prosecution Authority (NPA) which focus on prosecuting and criminal proceedings; Zimbabwe Republic Police (ZRP) which focus on prevention, investigation and arrest; then there is Zimbabwe Anti- Corruption Commission (ZACC) which investigates corruption related to money laundering cases among others.
We should not forget banks which are expected to know their clients and report suspicious transactions among others.
Money laundering offences in Zimbabwe
Zimbabwe’s economy is highly informal (>70%), uses United States Dollars (US$), its borders are porous, there is corruption and smuggling.
All these factors create a favourable environment for money laundering. Money laundering offences in Zimbabwe include: Illegal wildlife trade (ivory, rhino horn and pangolin scales); illegal mining and illicit market for minerals driven by criminal networks; gold, diamond, tobacco and fuel smuggling; drug trafficking; modern slavery; illegal money changers; cash and land barons; fraud and rampant corruption.
These contravene the Customs & Excise Act, Gold Trade Act and the Income Tax Act among others. The high threat level sectors include Banking, Real Estate, Motor Vehicle Dealers, Mining and Mobile Money dealers.
Some of the above mentioned offences are supported by recent reports such as Cartel Power Dynamics in Zimbabwe; Illicit gold markets in East and Southern Africa; Decrypting illicit gold trade in Zimbabwe, and Shadows and shells: Uncovering an offshore business empire in Zimbabwe.
Impact of Money Laundering in Zimbabwe
ML has a huge social, environmental, political and economic impact. It undermines the integrity of the Zimbabwean financial market, leading to a poor reputation of the financial system and low FDI.
It leads to economic distortion, investment instability and destabilised domestic markets.
In addition, it undermines the legitimate Private Sector, since money launders focus on cleaning money not profit.
Revenue is lost, the tax to GDP ratio of Zimbabwe has fallen from 28.1% in 2011 to 12.2% in 2019 and Zimbabwe is losing US$1.2 billion annually from gold smuggling only. It has led to infiltration of Zimbabwean politics and policy by “rich criminals”.
There has been increase in prostitution, child labour, drug abuse, murder, robberies and violent gangs known as maShurugwis.
Furthermore, there is deforestation; water, air and noise pollution due to Illegal mining.
Effectiveness of FATF recommendations
According to 2019 National Risk Assessment, revenue lost through illicit activities had decreased by 50% from the US$1.8 billion in 2015 to US$0.9 billion in 2019 (2019 National Risk Assessment).
We are yet to see what happened from 2020 to date.
Zimbabwe has made commendable progress in complying with FATF recommendations and was removed from Greylist in March 2022.
However, ML cases are increasing and their impact is worsening. Zimbabwe is not fully compliant to all FATF recommendations and the devil lies in the implementation, cooperation and coordination.
Our financial intelligence unit is not independent as expected.
Furthermore, policy inconsistency, huge informal sector, cash transactions, porous borders, rampant corruption, sanctions busting measures creates a conducive environment for money laundering rendering FATF recommendations ineffective.
These recommendations developed by rich nations are not one size fits all and most developing countries are implementing them mainly to avoid severe adverse consequences of non-compliance such as isolation from the international community.
In the 2020 financial crime assessment (FCN), Zimbabwe was rated overall “High” Risk, 9/10 Southern African countries and 26/40 in the SSA.
According to the 2021 Corruption Perception Index (CPI), Zimbabwe was ranked 157/180 countries, with a score of 23/100. In addition, the 2021 Basel AML index which assesses risks of money laundering and terrorist financing, ranked Zimbabwe, as the 12th riskiest country out of 110 countries covered.
There are also unintended consequences such as restricting business relationships, financial exclusion, undue targeting of NGOs and limitation of Human Rights caused by implementing FATF recommendations.
Despite Zimbabwe’s significant progress and its removal from FATF’s Greylist in March 2022 the devil still lies in the implementation and coordination.
ML cases are increasing and their impact is worsening. More needs to be done and the government must walk the talk.
The following recommendations are proposed:
- Zimbabwe must implement all the FATF recommendations as a Ffull package.
- Zimbabwe must invest in technology to apply sophisticated risk-based scoring, prioritisation and should not abuse these recommendations
- lFinancial intelligence unit and other regulatory authorities must be independent to effectively perform their duties in dealing with money laundering
- There is a need for education and capacity building to both citizens and institutions responsible for AML initiatives.
- FATF needs to urgently address unintended consequences, investigate and expose countries abusing FATF AML initiatives and where possible penalize such behaviour.
Nyamudzanga is an independent economist, researcher, tax consultant, ZES member, and holder of a Master’s in Tax Policy and Tax Administration and Degree in Economics. Email: firstname.lastname@example.org.
- *These weekly articles are coordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe Email — email@example.com or mobile +263 772 382 852.