Malawi has been named among the world’s 25 worst countries where money laundering is flourishing, with over K274 billion (US$608.9 million) illegally being moved out of the country annually, a Global Financial Integrity (GFI) report released this week has revealed.
The June 2015 Illicit Financial Flows and Development Indices report observes that funds amounting to 16.9 percent of the country’s GDP—which is at K1.6 trillion ($3.705 billion), according to World Bank’s 2013 report—is siphoned out of the country through illicit financial flows.
The lost funds represent approximately 30 percent of this year’s proposed national budget of K901.6 billion (US$2 billion) and more than the K228.7 billion (US$508.2 million) allocated for the civil service wage bill for the new financial year.
According to findings of the study from which the report was drawn, 40 percent of the 80 countries examined, including Malawi, had illicit flows that were at least 10 percent of the country’s total trade value.
“These include the notable cases of Nicaragua (28.9 percent), Malawi (24.6 percent) and Nigeria (16.3 percent).
“This finding may be a reflection of the fact that over the last 10 years, approximately 80 percent of all illicit outflows use trade misinvoicing (i.e. trade fraud) as the method to move funds offshore,” reads part of the report written by Joseph Spanjers and Håkon Frede Foss.
The report comes barely a month after Weekend Nation revealed that fiscal agencies in the country are investigating several companies suspected of illegally externalising billions of kwacha through, among other things, counterfeit invoices.
Our April investigations etablished that the companies—mostly owned by Malawi residents of Asian origin—also use fake Malawi Revenue Authority (MRA) documents and shell firms in the name of importing goods while externalising foreign currency from the country.
The GFI report further tabulates that Malawi’s illicit financial outflows externalise an equivalent of 315.3 percent of the money that government spends on education; an equivalent of 200.1 percent of the money government spends on public health and constitutes 2.2 percent of the country’s capital stock.
The country’s anti-money laundering expert Jai Banda agreed that misinvoicing leads to illicit financial flows as money which is not supposed to be externalised is smuggled out of the country.
Banda, a lawyer by profession, said the flourish of money laundering in the country is due to stringent foreign exchange control regulations which result in money being exported through the parallel market.
“When this happens it is difficult [for authorities] to determine source of funds hence facilitating money laundering,” he said.
Banda said lack of patriotism and insecurity on the part of individuals who indulge in the illegal practices is another setback in the fight against money laundering.
“On the other hand, some acts are just there to facilitate tax evasion.
Illicit financial flows are real in Malawi as they are anywhere else,” he said.
Malawi Economic Justice Network (Mejn), which heads a group of 15 non-governmental organisations that are championing the anti-money laundering fight in the country, said the report speaks volumes about how huge the problem of money laundering is for Malawi.
“This is particularly [so] when taking into consideration issues and revelations of corruption, fraud and cases of theft and abuse of office reported all bordering on criminality and financial impropriety in Malawi for the past years,” said Mejn’s executive director Dalitso Kubalasa yesterday.
He said the thriving of money laundering in Malawi hurts the country’s financial integrity and promotes corruption and bribery in the financial sector.
Financial Intelligence Unit (FIU) spokesperson Masauko Ebere said it was difficult to tell whether Malawi was winning the fight against money laundering and illicit flow of money as the country’s fiscal institutions lack financial and human capacity to fight the vice.
“It is a complex issue. The country’s public institutions face financial and human resource challenges.
“Then there is also the role of financial institutions in the country. The country can have governance institutions but it is the effectiveness of the system that makes governance institutions to be effective,” he said.
In an effort to fight money laundering, government wants to amend the Anti-Money Laundering/Controlling the Financing of Terrorism (AML/CFT) Act, the Penal Code and the Corrupt Practices Act in an effort to align them with United Nations Convention Against Corruption.
The government outlined the commitments in a March 2015 Letter of Intent to International Monetary Fund (IMF) in which government acknowledged grappling with money laundering.
Government also pledged that the Reserve Bank of Malawi will re-evaluate its capacity to monitor and supervise possible breaches of compliance with AML requirements by banks and apply appropriate supervisory sanctions with regard to any breaches of compliance.
However, government efforts seem incomplete as in the 2015/16 proposed national budget government has only allocated K140million (US$311 111) of the requested K290million (US$644 444) to FIU.
Figures from the past two budgets indicate that FIU’s budget has been consistently declining from K228 million (US$506 667) in the 2013/14 National Budget to K215 million (US$477 778) in the 2014/2015 National Budget before being chopped to K140 million this year.