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Illicit financial flows curtail economic growth

ALTHOUGH Finance minister Patrick Chinamasa’s 2014 Fiscal Policy Review statement announced last week seeks to widen government’s revenue inflows, analysts contend that there is need to seriously curb illicit financial flows from Zimbabwe.

ALTHOUGH Finance minister Patrick Chinamasa’s 2014 Fiscal Policy Review statement announced last week seeks to widen government’s revenue inflows, analysts contend that there is need to seriously curb illicit financial flows (IFFs) from Zimbabwe if the economy is to experience the anticipated growth. Veneranda Langa


Illicit financial flows through tax evasion, bribery, corruption, lack of transparency and accountability in mineral wealth and porousness at the country’s borders seem to have cost Zimbabwe a lot.

Although there are no exact and recent statistics on how much Zimbabwe is losing through IFFs, a research by Ndikumana and Boyce (2008) ranked Zimbabwe sixth in Africa on IFFs between the years 1970 to 2003.

African Development Bank statistics on Zimbabwe revealed that in the past decade Zimbabwe lost $12 billion to illicit financial flows, which made individuals and corporations richer at the expense of society.

Tafadzwa Chikumbu a policy officer on Economic Governance at the African Forum and Network on Debt and Development (AFRODAD) recently told delegates at a Transparency International-Zimbabwe workshop on curbing illicit financial flows from Zimbabwe that IFFs were money that was illegally earned, transferred or utilised in violation of laws in its country of origin.

He said IFFs were not a problem that affected Zimbabwe only, but were a global issue which had international implications and tremendously affected developing countries.

“The sources of funds may be legal, but their transfer may be illegal through tax evasion by individuals and companies. IFFs range from simple private individual transfer of funds into private accounts abroad without having paid taxes, to highly complex schemes involving criminal networks that set up multilayered, multijurisdictional structures to hide ownership,” Chikumbu said.

“Governments the world over are now joining forces to combat money laundering, tax evasion and international bribery, which makes up the bulk of IFFs. The exact scale of the problem is unknown, but IFFs have devastating effects on developing countries,” he said.

According to Baker (2005) quoted by Kar and Cartwright-Smith (2010) IFFs which happened through corruption, bribery and embezzlement of national wealth constituted 5%, those that happened through criminal activities such as the trade in drugs, weapons, and people constituted 35%, and commercial transactions through multinational companies constituted 60%.

IFFs rampant in mining, forestry, wildlife sector


Chikumbu said IFFs in Zimbabwe were more apparent in mining, forestry and wildlife-related safari activities.

“IFFs were noted in the diamond sector, where according to the Kimberly Process Certification Scheme (KPCS) Monitor, Zimbabwe sold at least $30 million worth of diamonds from Marange, which Treasury and Zimra confirmed that IFFs occur through tax evasion and tax avoidance schemes by multinational corporates, due to weaknesses in tax legislation.”

He said economic hardships and greed drove IFFs through corruption.

“Gaps in the legislative framework governing the mining sector create opportunities for corruption and rent-seeking behaviour. Information asymmetry between government and investors in the mining sector contributes to tax avoidance through under-reporting of the quantity, quality and composition of minerals.”

In wildlife and fisheries sector, Chikumbu said IFFs happened through weak governance and corruption.

In the timber industry, he said the problem was illegal logging due to the land reform programme that resettled families in indigenous forest reserves and national parks, which have exposed indigenous forests to exploitation.

In the mineral sector, he said export over-invoicing between 2009 and 2012 totalled $2,79 billion for which South Africa contributed 97,4% of the illicit flows from Zimbabwe.

Chikumbu said illicit financial flows in the mining sector were between Zimbabwe and countries like Belgium, China, Germany, Japan, United States and South Africa, they amounted to over $3, 1 billion.

In the wildlife sector between 2011 and 2013, the country is said to have also lost $17 423 952 through poaching, illegal trade in ivory and trophy hunting fees. In fisheries during 2007 to 2013 the estimated potential revenue lost to Zambia was $11 335 964, while over-invoicing in timber exports cost the country about $17,3 million in 2009 to 2013.

Strengthen legal, institutional frameworks to curb IFFs

AFRODAD policy officer Tafadzwa Chikumbu said in Zimbabwe there was no specific legal or institutional arrangement that dealt with IFFs, adding the situation was the same with other regional countries.

He said some frameworks to curb IFFs included the Anti-Corruption Commission to combat corruption, theft, misappropriation, abuse of power and other improprieties in the conduct of affairs in both public and private sector, as well as a unit in the RBZ (Bank Use Promotion and Financial Intelligence Unit established in 2004) to suppress money laundering, receive and analyse suspicious transaction reports from financial institutions and designated non-financial businesses.

Other legal frameworks included the Mines and Minerals Act which empowered the Mining Affairs board to assess books, accounts, plans, and other documents for purposes of assessing applications for carrying out investigations.

“However, the shortfall of these provisions is that they are responsive, rather than preventive of IFFs. In the wildlife sector, the Parks and Wildlife Act is the principal law regulating and controlling the trade and harvesting of wildlife and fishery. Zimbabwe is also a signatory of CITES [Conventon on International Trade in Endangered Species] which regulated the worldwide commercial trade in wild animal and plant species to ensure that international trade does not threaten the survival of any species,” he said.

Other legal instruments that can curb IFFs in Zimbabwe include the Forest Act, the Environmental Management Act, Criminal Code, Criminal Matters (Mutual Assistance) Act, Extradition Act, Trafficking of Persons Bill, Money Laundering and Proceeds of Crime Act, as well as that Zimbabwe is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) Although these legal instruments are available, the problem is said to be lack of enforcement.

“At global level, there is need for institutional co-ordination and information exchange to reduce the loopholes that are exploited by cross-border crime syndicates to curb IFFs. At country level, countering IFFs would require strengthening of the legal and institutional frameworks that are fit for a purpose, credible, enforceable and adaptable to the dynamic and complex illicit activities that facilitate IFFs,” he said.

On solutions to curb IFFs, Chikumbu said weaknesses in tax legislation needed to be addressed to curtail tax avoidance and aversion schemes by multinational corporates.

Government was also encouraged to carry out a comprehensive audit of the country’s minerals, and harmonise Zimbabwe’s wildlife laws with those of neighbouring countries.

It was also observed that there was need to disclose beneficial owners of shell companies.

Researcher, Farai Mutondoro from Transparency International-Zimbabwe said there was urgent need for policy dialogue to curb illicit financial flows.

“IFFs reflect the proceeds of corruption, crime and tax evasion.

Addressing IFFs will automatically increase the level of development while simultaneously reducing poverty. The money we receive in aid is less than the money we lose to IFFs, meaning that if there were no leakages Zimbabwe could be in a better economic position. The natural resources we have will not be always in abundance and the nation must benefit from them while they are still available.

“The public must therefore demand Parliamentary oversight to ensure the full enforcement of the recently gazetted Anti-Money Laundering and Proceeds of Crime Act, as well as enactment of a Whistle Blowers Protection Act to encourage both witness and victims of corruption to come forward. A mechanism for asset declaration on how individuals acquired wealth should be formulated,” Mutondoro said. ‘Politicians involved in IFFs

Chairperson of African Parliamentarians Network Against Corruption (APNAC) and MP for Kambuzuma Willias Madzimure (MDC-T) said asset declaration for legislators and other people in high positions of power had been proposed long back.

“However, the issue of asset declaration has not been taken up; obviously it is because of lack of political will.A resolution was passed in Parliament to introduce a motion on Asset declaration, but it was shot down by the Standing Rules and Orders Committee. There is need for political will and the understanding of the impact of corruption in society.

Zimbabweans are not fully aware of what corruption has done to this country. There are a lot of issues of people transferring money out of the country. There is need for awareness and understanding of how sophisticated corruption has become.” Madzimure said it was imperative for Parliament to expose corruption during committee sittings and cause arrests of perpetrators.

“In Uganda when the Public Accounts Parliamentary Committee sits there will be members of the Criminal Investigations Department who then pick up the people implicated. In Zimbabwe, people are being exposed, but we have not seen any action being taken or arrests,” he said.

Co-ordinator with Publish What You Pay Campaign Gilbert Makore said IFFs were also a sign of capacity gaps within our institutions.

“There is need to strengthen Zimra capacity in terms of knowledge and sector specific tax issues, as well as to strengthen the oversight roles of institutions such as the Auditor-General’s Office and the Zimbabwe Anti-Corruption Commission.Legislation dealing with IFFs should be reviewed and absence of such laws makes it difficult to address it. Parliament oversight also needs to be strengthened and reports of committees of Parliament should show evidence of IFFs and corruption and action should be taken on that evidence by committees.”

Makore said the former Mines and Energy Portfolio Committee which was chaired by the late Zanu PF MP Edward Chindori Chininga once produced a damning report on the mining sector in Zimbabwe and exposed corruption, but to date no action had been taken on the report.

“We have audit reports, but beyond the noise generated on the reports, there has not been follow up. They are just debated in Parliament and nothing is done in terms of arrests. Artisinal small scale mining is a big problem and there are many unregistered gold diggers and millers in the country resulting in a lot of minerals not accounted for. There is need to improve regulation of that sector.

“There is also need for geological surveys because we do not know how much minerals are in this county. Mines might have more geological information than government. We also need transparency and accountability as well as disclosure of information of mining contracts signed. Corrupt investors are also linked to political elites and this corrupts State institutions. There is also need to do a lot of research on minerals and come up with figures that are Zimbabwe specific, as well as to capacitate the media and civic society organisations to expose corruption,” Makore said.

Mabvuku Tafara MP James Maridadi (MDC-T) said the Zimbabwe Republic Police were well-trained and the best in the region, but he had noted that there was a big loophole in terms of investigating cases of corruption.

“It is high time that Zimbabweans should react whenever any individual is fingered for corruption. We need to speak out and demand to know how that person acquired their wealth because we have seen a lot of people getting rich overnight while the country suffered,” Maridadi said.

Evelyn Masaiti Muzungu (proportional representation MP MDC-T) said there was no political will to deal with IFFs.

“People involved in IFFs are very influential people, including politicians. We need to expose those politicians,” Masaiti Muzungu said.

Fanny Chirisa Proportional Representation MP (MDC-T) said there was need for urgent crafting of the Whistle Blowers Act, as well as to ensure bodies like the Zimbabwe Anti-Corruption Commission were adequately resourced to deal with issues of corruption and IFFs).

Lorraine Marima, a projects officer with the Chiadzwa Community Development said in the mining sector she had noted that most diamond companies mining in Marange were hiding under the name of exploration to steal Zimbabwe’s minerals.

“There is need to put a statutory instrument in place to guide exploration. The Mines and Minerals Act was also crafted in 1961 and it needs an overhaul because it is an archaic law,” Marima said.

Themba Mahleka, a researcher with Transparency International-Zimbabwe (TIZ) said Zimbabwe was a signatory to the United Nations Convention Against Corruption which is a tool to curb IFFs.

“We have laws to curb IFFs in Zimbabwe, but there is lack of implementation. A TIZ study revealed that the level of prosecution for offences were limited to petty corruption and major financial corruption crimes were not enforced and perpetrators were not brought to book. Enforcement should be improved and we need a good legal system to help us recover our assets for the development of the country,” he said.