Transparency International Zambia, has taken some time to critically review the 6th Money Laundering and Terrorist Financing Trends Report for the year 2019 released on 2 September 2020. This report was much anticipated by the general public for several reasons. Firstly, the Financial Intelligence Centre has in its short period of existence, earned public trust and confidence for the work that it has done. Secondly, the FIC in its 2018 Trends Analysis Report, raised a number of pertinent issues which were a cause for public concern and there was anxiety to find out if the trends of the past have continued and what progress if any has been made to attend to some of the predicate offences for money laundering such as corruption. The third reason why the FIC Report for 2019 was long awaited, was the negative reaction and incessant attacks made on the FIC and its leadership by the PF government and as a public, we wanted to assess whether the FIC has remained resolute in the discharge of its functions or it has been captured by those who vehemently opposed its 2018 report. Our general conclusion is that the 2019 FIC Trends Analysis report is the antithesis of everything that the FIC has stood for in the recent past. This document pales in comparison with recent reports in both substance and quality, it is essentially a Public relations document of peripheral value to any serious efforts to combat the high levels of corruption that this country is grappling with. One can only deduce that the political pressure of the recent past has come to bear on the FIC. We wish to demonstrate why we make this conclusion
1. Coverage of cases
The FIC for the 2019 report, received 790 reports comprising 748 Suspicious Transaction Reports (STRs) and 42 Spontaneous Disclosure Reports. Significantly, of Suspicious Transaction Reports received in 2019, the FIC only analysed 101 reports and out of which 44 were disseminated to Law Enforcement Agencies and 57 were closed as there were no reasonable grounds for dissemination. This is a very sad development because essentially, FIC only analysed 14% of the reports received compared to 24% in 2018. It is therefore incorrect for anyone to infer that Zambia has performed well because of the drop in suspected losses from STRs now valued at K984 million from the 44 intelligence reports. What is true is that the suspected losses from STRs could probably have been higher if FIC had even analysed even 50% of the 748 STRs it received. We note with concern the reasons for this reduction in the number and value of intelligence reports analysed, namely unpredictable funding which adversely affected the FIC’s ability to verify STRs and SDRs. We would have wanted to know the reasons for this unpredictable funding- was this deliberately designed to cripple the efforts of FIC, following the firestorm that the 2018 report raised? What this means is that it is possible that from the many STRs not verified, some of these could potentially be ripe for further consideration by Law Enforcement Agencies. What is further alarming is the admission by FIC that most of the 44 intelligence reports disseminated to Law Enforcement Agencies, were related more to individuals than corporates which usually have higher values. The question is was this a deliberate move on the part of FIC to focus on STRs related to individuals rather than corporates? Could this be that corporates which were previously captured in this analysis, are the conduits of choice for Politically Exposed Persons who set up shell corporate vehicles and trusts? We are left to ask, how was the decision arrived at to focus on 101 reports of mostly related to individuals and leave out corporate which could have higher values of suspected losses? This decision to focus on low value transactions, certainly raises eyebrows.
2. Changes in methodology and presentation
The 2019 Report has departed from the style and format of the 2018 report and this makes it difficult to make year on year comparisons of the progress made or lack of it, in addressing various issues of concern. In the 2018 Report, the FIC analysed in detail the STR trends by predicate offence and on Corruption, the FIC identified a number of corruption drivers including in public procurement, use of shell corporate vehicles and trusts, use of gatekeepers, use of nominees, and ineffective controls in public institutions. FIC made special mention of the awarding of public contracts to companies not registered under PACRA and mostly owned by Politically Exposed Persons. The FIC in 2018 made a number of recommendations to address some of these drivers of corruption. The 2019 does not provide this breakdown of the drivers of predicate offense and it is difficult therefore to appreciate whether this omission of details is as a result of Government implementing the 2018 recommendations or not. What has happened in the intervening year for us not to see the use of nominees as a driver of corruption, for instance? Does it mean the use of shell corporate vehicles and trusts has reduced? Are we now effectively enforcing the requirements of the law on disclosure of beneficial ownership? It is our considered view that the 2019 report misses an important piece on informing the public what measures Government has taken following the 2018 report. This makes it difficult to build any meaningful trends in the matters handled by FIC.
3. Lack of follow up on the FIC and other Government reports
The 2019 FIC Report raises some issues of concern which have been raised by the Auditor General, Parliamentary committees, Civil Society, cooperating partners, professional bodies among others. What is evident is that we are not making progress as a country in resolving a number of these issues. For instance, FIC mentions that Government continues to lose funds meant for the provisions of public goods and services due to corruption. This is a position that the Auditor General frequently alludes to and as TI Zambia we have continued to raise alarm on the inadequacies of the public procurement and we have showcased incidents like the US$17 million contract made to Honeybee even when this company did not qualify and yet Government has done nothing to address these losses arising from public procurement. We are all painfully aware that because of political patronage some of the contracts are awarded to ill qualified suppliers and contractors, who are basically members of the ruling party. This trend continues unabated and we will see more of this as we head towards the 2021 elections. It is a known fact that individuals (including some serving senior members of government) use their positions in public institutions to influence the awarding of contracts to companies in exchange for gratification in the form of cash, real estate and motor vehicles. Similarly, FIC highlights a problem of old – the single sourcing of projects which are non competitive- this is a perennial story which will not go away soon.
As TI Zambia, we have previously highlighted how suspected corrupt individuals in government have stopped receiving gratification through banks for fear of detection by Banks and the FIC, and therefore these individuals are asking contractors or suppliers to pay directly for the purchase of real estate, or purchase of building materials or motor vehicles. There is also a new trend of investing in luxury goods like expensive watches, jewellery, art work among others. We have also highlighted allegations made that some of the individuals in public institutions are keeping huge amounts of cash in their homes as a way of circumventing detection by Law Enforcement Agencies. If indeed we were a serious nation and we wanted to rid this country of corruption, our Law Enforcement Agencies should have followed up on these leads. What is the added value of FIC raising similar issues when Government and its leadership are simply not interested or have neglected to do anything about all these revelations? We are spending scare public resources to raise similar issues by different government entities. This is the same government which has refused to undertake Lifestyle Audits for elected leaders and senior government officials who could be some of the individuals referred to in this FIC report.
4. Ongoing Mukula Tree Saga
The 2019 FIC Report notes that some Suspicious Transaction Reports related to environmental crimes particularly the illegal harvest, transportation and export of the prohibited rosewood popularly known as mukula. FIC notes that funds generated from the sale of the prohibited tree were declared to financial institutions as proceeds from sale of timber. We note that in 2018, the FIC received Suspicious Transaction Reports (STRs) related to timber valued at ZMW 2,156,000. Many of the individuals in the illegal trade of Mukula established other businesses through which these proceeds were laundered. Our concern as TI Zambia is that this issue of mukula production is not new and Government has not handled the illegality surrounding mukula in an appropriate manner and it is clear that there is a lot money laundering linked to this trade. We want to remind the Zambian people of two previous reports on Mukula trade which have not received active attention from Government,- firstly the 2019 Mukula Cartel report by the Environmental Investigation Agency which alleged that mukula continues to be trafficked despite the outcry of the Zambian public and that the sale of this natural resource was allegedly benefitting only a few people.
Secondly, the 2018 Report on Mukula trade between China and Zambia, by the Centre for International Forestry Research, which highlighted that recent mukula production in Zambia could have amounted to about 110,000 m3 per annum, with revenue losses of about USD 3.2 million and bribes paid to state officials of about USD 1.7 million. This CIFOR Report also highlighted that what leaves Zambia as sawnwood seems to arrive in China as logs – “It seems clear that mukula, which is largely exported in logs, often gets declared as sawnwood at departure to comply with the legal framework, as a log-export ban remains in force in Zambia”. Finally, this report made a serious finding of discrepancies in declarations both in volume and value. For example, in 2016, Zambia declared to have exported about 3,000 m3 mukula for an approximate value of USD 900,000, while China declared imports of about 61,000 m3 for an approximate value of USD 87 million. FIC reporting on mukula trade today, while important, does not change the sad reality that as a nation, we are aware of unscrupulous activities related to this trade and we have done nothing about it. Most likely the 2020 Trends Analysis report will bring out similar concerns and in typical Zambian fashion, this will not move the people to realise the magnitude of the loss of vital natural resources which only end up benefitting a few.
In conclusion, we want to warn that the FIC Trends Analysis report risks becoming a non-event and one of the many valueless reports produced by Government, which are all intended to give a mimicry of a functioning government. Public trust in such institutions like FIC is important and we have seen how the work of important institutions like the ACC is being undermined because poor public perception. FIC Management and the Board, can make a decision to work for those in power or for the people they serve and whatever decision they make, they should live with the full consequences now and in the future.
Rueben L. Lifuka
Chapter President
