Illicit deals drain K470bn yearly

Malawi is losing about K476 billion (about $650 million) annually through illegal fiscal transactions in the face of economic challenges rocking the country, a report released by global financial analysts has indicated.

In the computation of data released by the Global Financial Integrity (GFI) in the Southern African Development Community (Sadc) covering the period 2004 to 2013, Malawi is ranked fifth out of 15 countries in terms of intensity of money laundering.

South Africa tops the list with $209 219 million (about K1.5 quadrillion) followed by Zambia with $28 853 million (about K21.1 trillion) and Namibia on third with $13924 million (about K10.2 trillion). On the other hand, Botswana is fourth placed with $13 680 million (about K10 trillion).

The statistics also show that during the period under review, Malawi lost an estimated $6.5 billion, an equivalent of K4.8 trillion at current foreign exchange rate. The country’s 2016/17 National Budget  is K1.3 trillion, meaning that the loss is enough to cover public expenditure for at least three financial years.

The money is part of the total $313 billion which Sadc States lost through illicit financial flows to overseas nations between 2004 and 2013.

The figures, released on December 16 2016, were arrived at following a computation of the GFI quarterly assessment report by Ghana Business News.

Malawi’s estimated annual lost funds is nearly half of its total 2016/17 National Budget and virtually represents combined allocation given to three key ministries of Agriculture (K198 billion), Education (K147 billion) and Health which got K95 billion.

In a June 2015 Illicit Financial Flows and Development Indices, GFI named Malawi among the world’s 25 worst countries where money laundering was flourishing.

In May last year, our sister newspaper, Weekend Nation, reported that fiscal agencies in the country were investigating several companies suspected of illegally externalising billions of kwacha through, among other things, counterfeit invoices.

Economics professor Ben Kaluwa said in an interview yesterday it was not surprising that the country was losing that much because of, among others, the country’s financial policies and how they are implemented.

He said: “One source of such problem is how we manage our foreign exchange regime on how people transfer money in or out of the country.

“There is what we call exit and entry barriers and if you mishandle them you actually invite people to abuse the system. So there has been a lot of smuggling of dollars from Malawi because the currency was overvalued which means the US dollar was cheap and people from abroad could just come to buy them and export them to their countries. That actually contributes to that kind of problem.”

Kaluwa, who teaches economics at Chancellor College, a constituent college of the University of Malawi (Unima), said one way of avoiding illicit financial flows was to undervalue the local unit, the kwacha, to deny incentives for people to come and buy the dollars because they will be very expensive.

He said: “We have to be very strategic with our policies and how we implement them although currently it is difficult to prevent it because the kwacha is still unstable and that gives room to the problem unless we went into strategic direction where we purposely undervalue our currency.”

Kaluwa also said some exchange control regulations result in the funds being exported through parallel markets which are difficult to trace at some point.

In an earlier interview, the Financial Intelligence Unit (FIU) said it was difficult to assess whether the country was winning or losing the fight against money laundering and illicit flow of money due to lack of capacity to fight the vice among fiscal institutions.

In an effort to fight money laundering, government proposed an amendment to the Money Laundering, Proceeds of Serious Crime and Terrorism Financing Act as well as the Penal Code and the Corrupt Practices Act to align them with the United Nations Convention Against Corruption.

Private practice lawyer Jai Banda, the country’s anti-money laundering law expert, is on record as having told The Nation that stringent foreign exchange controls provide a fertile ground for money laundering as they facilitate a parallel market through which money is externalised.

In March last year, government outlined its commitments in a Letter of Intent to the International Monetary Fund (IMF) in which it acknowledged grappling with money laundering. n