RBM moves to curb illicit financial flows

The Reserve Bank of Malawi says it wants to help put up an enabling legislation to ensure that legal practitioners are aware of financial crimes to curb cases on illicit financial flows.

Speaking at the opening of a day-long Financial Services Lawyers Conference in Mangochi on Monday, RBM deputy governor (bank supervision) Grant Kabango said currently, the central bank is investigating in excess of 10 multi-million kwacha cases involving transfer pricing and illegal foreign exchange externalisation

 While not giving the details of the firms involved in the malpractices, the central bank said the firms are mostly multi-nationals.

“The problem of transfer pricing is huge and is getting bigger by the day. We have been seeing a lot of businesses and companies that opened in Malawi, but when it comes to earnings and profits, most shift outside Malawi through transfer pricing.

“When we noted that the matter is eroding our tax base and foreign exchange, we thought this required proper focus in terms of legislation; hence, our engagement with the lawyers to share notes on how we can curb this,” he said.

Transfer pricing involves the pricing of goods and services between parties that control one another whether directly or indirectly. While not entirely illegal, transfer pricing manipulation is considered illegal.

Of late, cases of forex externalisation have been on the rise in the country, a development which has seen authorities scaling up efforts to curb the malpractice.

For instance, Malawi Revenue Authority (MRA) established a transfer pricing unit specifically to deal with such issues.

Further, Financial Intelligence Authority (FIA) has signed a number of memoranda of understanding (MoUs) with local and international fraud and crime busting bodies to facilitate sharing of information concerning illicit financial flows.

Kabango said RBM has successfully and conclusively prosecuted several cases of illegal foreign exchange externalisation amounting to K587 million, thanks to collective efforts from other government bodies such as MRA, FIA, Malawi Police Service and the office of the Director of Public Prosecutions.

On his part, Malawi Law Society (MLS) vice-president Patrick Mpaka said it is important that lawyers are up to date with knowledge pertaining financial crimes.

“Legal knowledge is a continuous process. We already have very high standards but the knowledge we are acquiring today will help enhance those standards to our job even better,” he said.