Grey zone – Zimbabwe

 

A copy of a 10 billion Zimbabwean dollar note on a mug in Victoria Falls (Paul Cochrane)

I am finally publishing a Money Laundering Bulletin (MLB) article on Zimbabwe that came out in 2022 (behind a paywall) that I have held off uploading as wanted to go in and out of Zim without any problems (I did so over Christmas and New Year). Why the hesitancy? The evening before interviewing a former politician off-the-record I unusually did not turn on my VPN, then spent a few hours online reading about my source and financial crime in Zim. The next morning my non-encrypted account, Gmail, informed me that there had been an attempt to steal my password, the activity was indicative of a government, and that “this happens to less than 0.1% of all Gmail users”. Coincidence?

Grey zone – Zimbabwe

Money Laundering Bulletin, 6 August 2022 

Rich in natural resources but yet emerging from decades of economic mismanagement, Zimbabwe has turned a corner in tackling money laundering, according to the Financial Action Task Force. Paul Cochrane, in Pietermaritzburg (South Africa), finds not everyone so convinced.

Zimbabwe was taken off the Financial Action Task Force's (FATF) grey list in March (2022), but major issues still abound claim critics of the move - from corruption to large scale gold smuggling - while a controversial law on NGOs may be misused to go after political opponents, they argue.

Inflation and corruption 

The southern African country is facing chronic economic problems, even though the International Monetary Fund (IMF) has (so far) been predicting economic growth of 3% for this year (2022). Annual inflation is running at 192% (as per July 2022). Also, the resurrected Zimbabwean dollar currency has lost 99.3% of its value against the US dollar since 2019. And even Zimbabwean government estimates put gold smuggling at US$1.8 billion a year, draining revenue from one of the country’s key natural resources. Corruption is widespread, with allegations made by Zimbabwean civil society organisations that the country’s political and military elite are linked to black market sales of gold and diamonds, another key domestic resource. The country ranked 157th out of 180 jurisdictions in the 2021 Transparency International Corruption Perceptions Index.

Performance measurement

In early 2019, FATF and the Eastern and Southern Africa Anti-money Laundering Group (ESSAMLG) issued a mutual evaluation report (MER) follow-up that ruled Zimbabwe non-compliant with six FATF Recommendations and partially compliant with 14. (1)

It therefore came as no surprise that Zimbabwe was placed on the FATF grey-list in October 2019 for strategic deficiencies in its anti-money laundering (AML) and countering the financing of terrorism (CFT) regime. 

Perhaps surprising, though, was that FATF removed Zimbabwe from its grey list less than three years later, observing that since its last MER report, “Zimbabwe has taken initial steps towards improving its AML/CFT regime, including by establishing a legal framework to collect beneficial ownership information of legal person and arrangements.” That came through a new Companies and Other Business Entities Act covering beneficial ownership issues (2), mandating beneficial shareholding disclosure to the government's Companies Registry. 

The southern African country also issued a second National Risk Assessment report in 2020. In the same year it released a Strategic Plan for fighting money laundering, terror financing and proliferation financing, which included a government commitment over the following five years to proactively identify ML/TF threats and implement risk-based approaches to AML and CFT.

Zimbabwe had previously, in 2018, amended the national Money Laundering and Proceeds of Crime Act to be in line with FATF recommendations: the judiciary are now also empowered to issue unexplained wealth orders on property worth at least US$10,000 (5).

Too soon to tell...

So, there have been legislative reforms, but with FATF’s new policy focusing more on effectiveness than technical compliance with its standards, reflected in the grey-listing of the United Arab Emirates (UAE), Zimbabwe’s removal from the ‘increased monitoring’ list this March (2022) has raised some eyebrows. “I was surprised it was taken off so quickly because it seems too fast to identify the effectual changes, as opposed to bringing in lawyers to update the laws. Our investigators are currently working on a project that calls into question the level of compliance with FATF standards,” said Denisse Rudich, a senior policy advisor at The Sentry, a US-based investigative and policy organisation, told MLB.

However, Dr Prosper Maguchu, project manager at the Centre for International Cooperation (CIS), at Vrije University, in Amsterdam, the Netherlands, and the founder of the Zimbabwean AML Institute (ZAMLI), was pleased the country was removed from the grey-list: “If there were sanctions or a blacklisting, Zimbabwe would truly become a pariah state and the government would use it to their advantage, to shroud things in secrecy and be more unaccountable,” he said, “But there is there is still a long way to go. People are not being trained at financial institutions, nor designated professionals. There is still a need for a culture of compliance.”

Roselyn Hanzi, Executive Director of Zimbabwe Lawyers for Human Rights (ZLHR), said that although Zimbabwe is off the grey list more work still needs to be done to curb ML. “If we look at FATF’s Mutual Evaluation Reports, so many areas are supposed to be addressed, but it is not being done properly. The government is pushing the implementation of (FATF) Recommendations that it can manipulate to ensure their political survival,” she said.A general election will be held in Zimbabwe next year (2023). 

Legal risk

A case in point is the 2016 MER finding that of non-compliance with FATF Recommendation 8, on combatting the abuse of non-profit organisations: a proposed law, the Private Voluntary Organisations (PVOs) Amendment Bill, (7) has been criticised for not complying with international human rights standards, with the ZLHR expressing its concerns to FATF. (8)

Hanzi warned that if the law passes “it may target certain civil society organisations and political leaders with charges of money laundering.” Her ZLHR colleague Fiona Iliff said: “The Bill will have unintended consequences of severely restricting the operating space of civil society. This will affect civil society's oversight role in matters of economic governance and ensuring accountability for illicit financial flows. It is contrary to FATF Recommendation 8 which calls for a targeted and proportionate risk-based approach, in consultation with civil society, to identifying any organisations at high risk of money laundering or terrorism financing and imposing any additional measures on them.” FATF did not respond to MLB’s questions about the controversial bill.

Top shot

The government may have incentives to restrict private and voluntary organisations. The Sentry, based in Washington DC and well insulated from Zimbabwean regulation, released two detailed reports in 2021 on financial crime in Zimbabwe that were less than complimentary of the current Zanu-PF ruling party. One paper concerned “possible unlawful payments” from the Reserve Bank of Zimbabwe (the central bank) to companies controlled by Kudakwashe Tagwirei, an advisor to President Emmerson Mnangagwa, involved in a Command Agriculture government spending programme. (9) The second report focused on Tagwirei’s offshore business empire, with the billionaire operating more than 40 companies in the oil, mining, banking, logistics, transportation, and import/export sectors. (10)

The report prompted an investigation in Mauritius and a reshuffle of the leadership team of one of the companies mentioned, said The Sentry, while Tagwirei was sanctioned by the USA in 2020, and by the UK in 2021. “The operations of Tagwirei’s network are emblematic of larger, structural problems in Zimbabwe. A select group of politicians, the military, and businesspeople dominate government decision-making with little oversight or scrutiny,” said John Prendergast, co-founder of The Sentry, in a media statement.

Greenback to the fore

A major obstacle to curbing money laundering and financial crime is ongoing use of the US dollar in the country. In 2009, amid hyperinflation and the issuance of a 100 trillion Zimbabwean dollar note, foreign currencies were allowed as legal tender. In 2019, the Zimbabwean dollar was reintroduced to end dollarisation. However, the currency has since collapsed against amidst steep inflation. As a result, the informal foreign currency market is booming, with Zimbabweans preferring to use, and keep their savings, in US dollars, said Maguchu.

Just 17% of Zimbabweans receive wages or government transfers in a bank account, according to the Global Partnership for Financial Inclusion. “Zimbabweans don’t trust the government to put their money in US dollar [bank] accounts as the rules keep changing,” said Maguchu. So, cash is king. Informal dollarisation “means there’s a need to convert money on the black market, which is done in a similar way to the black-market peso exchanges in South America. Zimbabweans are selling fresh US$100 bills as most of the dollars are worn out and people are making a living fixing damaged notes. People are literally washing money,” he said.

A former Zimbabwe politician that requested anonymity said few controls were in place outside of banks to control the flow of dollars. “I can withdraw US$1,000 a day or US$10,000 a week from an ATM, but where does that cash come from? The official market is US$35 million a day, but the informal trade in US dollars must be 10 or 20 times the size of the formal sector,” he said. Foreign exchange businesses are operating “without controls,” he added. “You can move unlimited amounts of cash anywhere in the world.”

‘Mosi-oa-Tunya’ (‘The Smoke that Thunders’) / Victoria Falls (Paul Cochrane)

Drugs, precious metals and minerals

The former politician said the country has become a “paradise for people to move dirty money,” being a drug trafficking and money laundering route from Mozambique to South Africa, and a conduit for the smuggling of gold and diamonds. Zimbabwe generates around 75% of its US$6.3 billion’s worth of annual exports from minerals and precious metals such as gold, platinum and nickel, according to Reserve Bank of Zimbabwe (RBZ) figures. Gold exports were US$1.7 billion in 2021. The country’s sole buyer and marketer of gold - Fidelity Printers and Refiners (FPR) - received some 29.6 tonnes in 2021.

However, an estimated 3 million tonnes of artisanal gold, some US$157 million a month, is being smuggled out of the country, according to 2022 report ‘Zimbabwe’s disappearing gold’ by the Harare-based Centre for Natural Resources Governance (CNRG). The report noted that gold dealers submit less than 30% of Zimbabwean gold output to the FPR, “while the rest finds its way to South Africa, the UAE, and other Asian countries such as China and India”. (7) The government estimates between 30-34 tonnes of gold is smuggled to South Africa a year, equivalent to US$1.8 billion.

The CNRG report alleges: “Gold dealers, who are protected by ruling Zanu-PF party officials, use state apparatus to capture and control gold-rich areas throughout the country.”

There was an illustration, in 2020, when the president of the Zimbabwe Miners Association, Henrietta Rushwaya, was arrested at Harare airport for allegedly trying to smuggle six kilogrammes of gold to Dubai. She is still in office, having been reinstated in 2021.

To make this trade less controllable, Zimbabwe is a hub for gold both locally-sourced and from elsewhere in the continent. “At least 100 tonnes is being traded annually, around two tonnes a week, and 30 percent of that is from places like the Congo being smuggled south and legitimised here. There are gold transport flights to Dubai, with one private jet flying on a weekly basis with several hundred kilos of gold on each trip,” said the former politician.

As with AML in general, however, the Zimbabwean government has started to take action against gold smuggling and to clean-up the supply chain, having been warned of serious consequences, in this case by Dubai, warning that Zimbabwe could be banned from its valuable bullion market, said the former politician.

But, it would appear one step forward, two steps back: in July (2022), the Zimbabwe central bank launched a gold coin that can be used as domestic currency in a move to curb rampant inflation. Called the ‘Mosi-oa-Tunya’, which means Victoria Falls in northern Zimbabwe’s Tonga language (literally, and rather more poetically – ‘The Smoke that Thunders’). While buyers will officially only be able to trade coins for cash after 180 days, critics believe it could be misused. “The gold coin is yet another way to launder money,” said Maguchu.

Disappearing diamonds

Moreover, when it comes to the country’s US$800 million-a-year diamond trade, the sector is “totally opaque,” said the former politician. “We know US$25 billion’s worth of diamonds essentially vanished over the last decade, since 2012.”

The military allegedly controls nearly half of the output, he claimed. “It is shared among senior officers and keeps the army loyal to the powers that be. Formal salaries are low, and the lifestyle of these guys bears no resemblance to what they earn,” he added.

With a general election looming, illicit cash flows may surge. “People will try to get money outside before the elections as maybe the opposition will come to power. Any political event in Zimbabwe is connected to financial crime,” said Maguchu.

Zimbabwe’s FIU did not respond to MLB’s interview requests. 

NOTES:

1)https://www.fatf-gafi.org/media/fatf/documents/reports/fur/ESAAMLG-Follow-Up%20Report-Zimbabwe-2019.pdf

2) SI 246 of 2018 (Amendment of Money Laundering and Proceeds of Crime Act and Exchange Control Act) Regulations.

3) https://www.fiu.co.zw/wp-content/uploads/2020/11/Consol-NRA-2020.pdf

4) https://www.fiu.co.zw/wp-content/uploads/2020/11/Strategic-Policy-2020-2025-Consol-Final-Feb-2020.pdf

5) https://www.fiu.co.zw/wp-content/uploads/2019/06/MLPC-Act-amended-to-July-2019.pdf)

6) [Chapter 24:31] of 2019

http://www.esaamlg.org/userfiles/Zimbabwe_detailed_report.pdf

7) Private Voluntary Organisations Amendment Bill (Chapter 17:05) gazetted on November 5, 2021.

8) https://www.zlhr.org.zw/wp-content/uploads/2021/11/ZLHR-Position-Paper-on-Amendment-of-Private-Voluntary-Organisations-Act-PVO-in-Order-to-Comply-With-Recommendations-Made-by-Financial-Action-Taskforce-FATF.pdf

9) Legal Tender? The Role of Sakunda and the Reserve Bank of Zimbabwe in Command Agriculture.

 https://thesentry.org/reports/zimbabwe-command-agriculture/

10) Shadows and Shell Games: Uncovering an Offshore Business Empire in Zimbabwe. https://thesentry.org/reports/shadows-shell-games/

11) Zimbabwe’s disappearing gold. The case of Mazowe and Penhalonga. https://www.cnrgzim.org/_files/ugd/e33f9c_c5efdb731bef475fbab6c05672b37fdc.pdf?index=true