BINDURA UNIVERSITY OF SCIENCE EDUCATION

FACULTY OF COMMERCE

NAME : TAFADZWA CHITERA

REG NO : B1440085
PROGRAMME : BCom F.I
COURSE CODE : FI 404
COURSE : Money Laundering
LECTURER : MR CHIKOMBA

Assignment 2 Question
Discuss the emergence and characteristics of money laundering in Zimbabwe giving
examples of documented cases between 2004 and 2006.
This assignment will be discussing the emergence and characteristics of money laundering in
Zimbabwe 2004 and 2006. It reviews the typologies of money laundering being identified;
process of appearing and process of become known or developing. Money laundering
become a serious threat to the global level in sense that they funds criminal activities such as
human trafficking, terrorism , drug trafficking, cross border smuggling of cash and illicit
dealings in precious such as smuggling of gold .

The anti-money laundering act defines money laundering as an activity which has or likely
to have the effect of concealing or disguising the nature, source, location, disposition or
movement of the proceeds of unlawful activities or any interest which anyone has in such
proceeds. Money laundering can be explained as process by which criminals disguise the
original ownership and control of the process of criminal conduct appear to have derived
from legitimate source Goredema (2003) defines money laundering as all activities aimed at
disguising or concealing the nature or source of, or entitlement to money or property derived
from criminal and/or unlawful activities.

Schroeder (2001) states that criminals engage in money laundering for three reasons. Firstly
money represents the lifeblood of an organisation that engages in criminal conduct for
financial gain because it covers operating expenses, purchase the services of corrupt officials
to escape detection and further the interests of illegal enterprise. To spend money they derive
illegally, criminals must make the money appear legitimate. Secondly, a trail of money from
illegal activities can be incriminating evidence. Criminals have to obscure or hide the source
of their wealth or alternatively disguise ownership to ensure that illicit proceeds are not used
to prosecute them. Thirdly, the proceeds from crime often become the target of investigation
and seizure.

The causes and nature of money laundering in Zimbabwe need to be seen in the context of
the country’s social, political and economic environment. This is dominated by an economy
that is under persistent siege from internal and external forces. The most visible impact is the
country’s rapidly falling currency: at the end of August 2006, inflation reached 1,204.6%, the
highest in the world. There are no signs of a significant improvement in this rate as the
economic situation continues to worsen (Fundira B, 2003).
According to the Reserve Bank of Zimbabwe (RBZ) guidelines of anti-money laundering,
there were a number of pieces of legislation touching on money laundering in existence in
Zimbabwe before the coming into being of the Bank Use Promotion and Suppression of
Money Laundering Act in 2004. These included The Serious Offences (Confiscation of
Profits) Act of 1990 and The Prevention of Corruption Act. Hence provisions dealing with
the suppression of money laundering were scattered in different types of instruments. This
had the disadvantage that the law ceased to be easily accessible to those members of society
who need to use it. Generally this made Zimbabwe susceptible to money laundering activities
because of “loose” laws.

There is case of Mutumwa Mawere who was charged with allegedly siphoning funds out of
the country using his companies in Zimbabwe and South Africa. As a result, the companies
under his control became insolvent (Fundira B, 2003). Afaras Gwaradzimba of AMG Global
was appointed as the administrator of Mawere’s businesses. As cited by (Fundira B 2007),
the state alleges that African Associated Mines (AAM), of which Mawere is chairman and a
substantial shareholder, violated exchange control regulations by failing to account for
foreign currency received to the Reserve Bank as required by law. According to the state, the
amounts involved are US$50,293,797.80, C$11,491,423.75 and ZAR19, 350,170.80 (Fundira
B, 2003).

According to Reserve Bank regulations, companies are required to fill in Control Document 1
(CD 1), which confirms foreign currency charges and the proceeds received from a
transaction, within 90 days of receiving payment. Police have unsuccessfully tried to
extradite Mawere from South Africa on allegations of the externalisation of foreign currency.
The regulations effectively provide for civil forfeiture and could be challenged for being in
conflict with the Constitution of Zimbabwe, especially since the regulations have so far been
applied in the case of only one individual.
The RBZ guideline on section (10.1.1) requires banks and cash dealers to have in place
adequate policies, procedures and internal controls that promote high ethical and professional
standards and prevent their institution from being used, intentionally or unintentionally, by
criminal elements. If the Century Holdings had adhered to the RBZ requirements it might
have been in existence to date. Section (10.1.2), of the guideline goes on to concertize banks
and cash dealers to therefore, establish clear responsibilities to ensure that policies,
procedures and internal controls are introduced and maintained which deter criminals from
using their facilities for money laundering and terrorist financing.

The category of institution comprises those that are set up legitimately and operate as such
for a long period. Corrupt employees then see an opportunity to make money by engaging in
money laundering activities. As (Fundira B 2003) puts it, First Mutual had been in operation
for decades, demutualised in 2004. The First Mutual management formed a company, known
as Capital Alliance (Private) Limited to enable them to subscribe for 20% of the new
company’s equity. ENG became one of the largest investors in Capital Alliance. It is
significant that First Mutual Asset Management invested an amount in ENG that was
equivalent to the amount that led to First Mutual’s demise. On sub-section (4.4.1) of the RBZ
guideline, on the categories of money laundering; “concealment within business structures”,
is also a category of money laundering. The First Mutual management had concealed their
company formation of Capital Alliance. The top management of First Mutual were accused
of setting up back-to-back arrangements with third parties to finance the purchase of shares
from the company and indirectly using depositors’ funds as collateral security.

First Mutual sued Royal Bank when it saw its demise. In order to protect itself against the
inevitable run on deposits, Royal Bank issued press advertisements to the effect that the
amount claimed was security for funds invested on behalf of the management in Capital
Alliance. On 4 August 2004 at 18:00, Robert McIndoe of the chartered accountancy firm
Ernst and Young was appointed curator of Royal Bank. On the same day, the acting Minister
of Finance placed First Mutual under the control of KPMG, another firm of chartered
accountants. As a result, First Mutual policy-holders lost money, as did depositors in Royal
Bank. Investors in First Mutual Asset Management lost their investments because the
company had to be liquidated as a result of the back-to-back loans.
Bearer cheques have created their own legal and practical problems, some of which are
connected to money laundering. The security features on the bearer cheques are inadequate
and there have been several reports of counterfeit substitutes being used. The illegality of
taking bearer cheques out of the country was successfully challenged in the matter of Richard
Floyd Mambo and Nigel Mahoko (Fundira B, 2003). A magistrate in Chinhoyi (a small town
in Zimbabwe) ruled that bearer cheques were not currency in terms of exchange control
regulations. The magistrate was deciding a case where Richard Floyd Mambo and Nigel
Mahoko were facing charges of contravening the regulations by attempting to cross the
border between Zimbabwe and Zambia without declaring Z$575 million (US$5,75 million)
worth of bearer cheques concealed in their Toyota Corona vehicle. The accused successfully
argued that the bearer cheques were not the official medium of exchange in terms of existing
legislation. New regulations introduced in July 2006 have incorporated bearer cheques into
the definition of currency. This was a loophole in Zimbabwe’s regulations.

The use of the banking system is also a challenge in Zimbabwe. In August 2006 the Governor
of the Reserve Bank launched what he called Project Sunrise. Individuals and organisations
were given a window period of 21 days to 31 August 2006 to exchange old bearer cheques
for new ones (Fundira B, 2003). When individuals wished to deposit amounts of more than
Z$100,000,000 (old currency, equivalent to UD$1,000)2 they had to produce proof of the
source of the funds. Earlier, the governor had claimed that of the Z$43 trillion issued by the
bank, only Z$10 trillion (or less than 25%) was in circulation in the official financial system.
At the end of the exercise, Z$10 trillion worth of bearer cheques could not be accounted for,
suggesting that the funds were in the underground markets and had never resurfaced. It has
long been evident that a lot of money was circulating in the informal and sometimes illegal
markets, which is perhaps not surprising given the high rate of inflation and the average
interest rates of less than 100% per annum.

From above cases ENG led to a downfall of a number of institutions because difficulty in
detection and prosecution, which is one of Croal’s characteristic of money laundering.
Generally, if money laundering was easy to detect, most of the above financial institutions
would have survived. An ambiguous law is another characteristic of money laundering, for
example the Exchange Control (Money Transfer Agencies) Order Promotes money
laundering and was later banned in October 2006. The accused successfully argued that the
bearer cheques were not the official medium of exchange in terms of existing legislation.
New regulations introduced in July 2006 have incorporated bearer cheques into the definition
of currency. The two had a case to answer but because of ambiguous laws they found their
way out.

In conclusion, Zimbabwe has come a long way in putting together an anti-money laundering
infrastructure. As a developing country, it is faced with the need to attract foreign capital.
Unfortunately the general downward drift of the economy, coupled with some of the
measures taken to resuscitate it, have compromised the effectiveness of the anti-money
laundering regime. It is ironic, however, that despite rampant money laundering in the
country, no prosecutions are taking place. Generally, there is need for stringent measures in
Zimbabwean laws regarding to money laundering. Improvements to money laundering act
must be done.
REFERENCES

1. Fundira B, Money Laundering In Zimbabwe, 2004 TO 2006.

2. Guidelines on Anti-Money laundering and combating the financing terrorism: For
financial institutions and non-financial businesses and professions, RBZ, Harare,
Zimbabwe.

3. Goredema, C. 2003. Money laundering in East and Southern Africa: An overview

of the threat. ISS paper 69. Pretoria: Institute for Security Studies.

4. Reuter, P. and Truman, E.M. 2004. Chasing dirty money: The fight against money
laundering. Washington, D.C.: Institute for International Economics

5. Schroeder, W.R (2001), Money Laundering: A global threat and the international
community’s response, FBI Enforcement Bulletin May 2001, UK.