THE Financial Intelligence Centre (FIC) says as the illicit cash transactions in the financial sector get worse, Zambians must focus their eyes on the rise in criminal activities around timber, wildlife and precious stones, such as gold, as these have become easier means for criminals to take money out of the country.
And, outgoing FIC acting Director General Clement Kapalu says when boards of government institutions do not provide the latitude for workers to do what they ought to do, they engage in self-censorship which inhibits initiative and innovation.
In this verbatim interview, Kapalu explains the challenges the center has faced in the past one year, and implores the public not to lose confidence, saying criminal elements will have it hard trying to break the professional culture at the institution:
Question: The long awaited 2019 FC report is finally out but we note the method for releasing it is a little unusual. Why has this been the case?
Answer: Indeed we changed the manner of release of the Trends report this year. Previously, the centre would invite stakeholders at a central location at which a short speech would be given and an opportunity for stakeholders to react to the report. Some stakeholders liked that process, some did not and we constantly listened to feedback from our stakeholders. And on this occasion we thought we should do it differently. Apart from listening to some sections of our stakeholders, you remember we had issues of COVID and the fact that we could not have a lot of people in one location like we always do so we thought we could use our website to launch it. Nothing sinister.
Q: Interestingly, we have seen a sharp decline in the number of cases disseminated and cases analyzed, including the overall figure of money lost to illicit financial transactions, from K6 billion in 2018 to less than a billion in 2019. Is the FIC saying there has been a reduction in these illicit activities?
A: Variations in numbers speak much more to the fact that crime is not like you work in a factory floor where you can say ‘we produce 100 bricks per day’ what comes to us in terms of reports will wildly vary or fluctuate. Our job is to ensure that once that comes, we are able to analyze it according to the law and disseminate. This year, the report has gone to great lengths to put out a flowchart on how the center receives the information, analyzes it, and disseminates it. That was deliberate to indicate that what the center looks at, as a matter of fact, comes from other stakeholders. So we don’t choose what we need to analyze. Reporting entities, of which banks are a big part, send to the center what we have to work on. And once they have sent, our obligation is to look at what is before us and therefore, what comes in, the center has no control. And therefore what we receive is what we analyze and disseminate. So in that sense , it should not be viewed as though the center had control of what those numbers should look like. If it is K6 billion that we have received and we think it has reasonable suspicion, we shall disseminate it as it is. If it is K1 billion as has been the case this particular period we shall disseminate. If it shall be K7 billion next year, so shall it be reported.
Q: A number of people were disappointed immediately this 2019 report was circulated. People expected to see a rise in cases reported and disseminated because of the various suspicious financial activities happening around the country. I know you have explained that, that process is really not entirely up to the center. But are you not concerned that there could be a school of thought among members of the public that perhaps the center has been captured, given the figures we see in this report?
A: We value the trust that the public has in this center and I would like to assure that to the extent that the law allows us to carry our mandate, we shall continue to do so. As a matter of fact, this is one institution which, to the extent possible, has tried to execute its mandate without any influence from outside. You will get pressure, some of it negative but the decision as to whether to bend to that pressure, frankly is yours. Has there been any external influence as to how and what ends up getting reported? I would categorically say no there hasn’t
Q: Reading the report, there is a part where I noticed an indication from the centre that there was an element of inadequate funding. What does this mean? You were not receiving funding from the ministry?
A: We are receiving funding and we did receive funding last year but it was anywhere between 65 and 70 percent of the requirements of the center. That directly affects our ability to do verification of the suspicious transactions reports that we receive from reporting entities. So yes it is correct that funding in the previous year was not adequate and it did to some extent impact the results that you see. Having said that, one should commend the government. There has been a complete reversal in 2020. We have seen a trend where the government has fully funded the center in 2020. And I can promise that you will see a much more improved and robust performance for 2020.
Q: My next question was going to be that perhaps the inadequate funding could be deliberate because we have seen sentiments from some government officials that as the center you are going against the law to consistently release this report, which some individuals in government find contentious. They feel that it is simply a process of witch-hunt because you are disseminating what they call raw data or rumors. What would you say to that?
A: We would like to believe the inadequate funding impacted other institutions as well, not only the Centre. But more importantly we had a situation this year where through the Cabinet affairs committee of parliament, the mandate of the center was under significant scrutiny and a lot of stakeholders were invited to present papers including those that we work with extremely closely. And if you followed that process, it is abundantly clear that the center is executing its mandate as required by the Financial Intelligence Centre act and we are executing our mandate as required by international ML standards as pronounced by the financial action task force. So there is no question that the center may in one way or another, in fact, be going against the mandate that the law has given.
Q: Among the issues highlighted were cases of money laundering being pretty much on the rise. Would you like to explain to the people what that in comparison to 2017 and 2018.
A: Broadly speaking, If you look at the crimes seen in the country, the biggest problem that we have is that our preventative measures are not working well as they should. Even if you had a very good criminal justice system, that is able to detect a lot of them, there will be no capacity to actually investigate, prosecute and probably convict these criminals. What needs to happen is its cheaper to prevent criminality from happening if criminality is widespread. It does not matter how good your investigative wings are, how your judicial system is, they will get overwhelmed. That is just what it is. Therefore, I believe we need to invest a little bit more on measure to prevent rather than to detect and correct crimes. I would go further that we have a situation where if you take an average public institution, and if the performance is not where the public expectation is, they are likely to give you the following reasons; one capacity, two; inadequate laws, three; they could talk of things like inadequate training or lack of financial resources. Truth is these may be contributing factors but there are not the major factors, the main factor is culture. That is the hard job. If for example one of the main sources where proceeds of crime are being laundered is the procurement process. What answer do you get? Let’s revise the law.
Q: Does that change anything?
A: It does not. So what do you do? Where then is the problem? People will gladly put money through law reforms but you constantly get the same results, the answer is why? It is the culture. We know that even if the law is changed, there will be overriden by controlling officers, there will be collusion and still making it ineffective. We have not started to have a conversation, the real conversation of what we need to do and it is everything to do with change. And that is where we need to steer this conversation. You will whip ACC, you will whip DEC there is only an extent to which they will be able to deal with these issues because they will easily get overwhelmed. We need to get back to a situation where we are saying why are these things happening? How can we stop them from happening? Rather than let them happen and then we detect and then hopefully think we can correct .These latter processes delay and they are expensive. But importantly it is critical that we think through this aspect of a culture change. And I can tell you having spent seven years here and reflecting on my time at the Centre, the one thing that has made these institutions perform despite the constraints in the law, constraints in financial resources, it has always been the culture that the initial governing board embedded in the center and that is going to continue because it is a source of sustainable competitive advantage. If you are looking from outside to say what makes the center tick, it won’t be money. It is not going to be capacity building, or training these are contributing factors. The real issue is intangible value, behaviors you inculcate into the people that you lead in order to ensure that they have the necessary space and the latitude to do what they ought to do. If you begin to constrain staff, you begin to get self-censorship, you begin to get a lack of initiative, you begin to get a lack of innovation and this goes across other public institutions. Give institutions freedom of action, you will see innovation, you will see a lot more initiative than we probably have. And I think at the FIC this is one aspect that I have been able to see that despite other constraints, there has been positive movement.
Q: in the report you talk about procurement challenges. Somebody in government was suggesting that maybe what Zambian needs is the office of Procurement General, like you have the Accountant General’s Office. Do you think that, from the center’s point of view, would help in some way?
A: There are different schools of thought. There is one that advocates for decentralization of that process, perhaps to the district, perhaps to the provinces because that one devolves power of those that are in Lusaka who are able to make decisions which negatively may affect people that are far off from the capital city. So there are individuals who believe more devolution will empower citizens to make decisions at the local level and that also applies to procurement. There are some who believe they will not be able to handle it and you will see a multiplicity of the corruption. So that is a debate but then you can look at it and say ‘this is an arrangement that we previously had to some extent through the Zambia National Tender Board.’ It is for academics to help us now check and analyze whether or not procurement corruption at that time was like it is today. Which of the two served the republic better? But everything said whether you decentralize or centralize to me it goes back to the core issue of values, behaviors. What makes our culture as individuals? We may borrow the best systems, superintend them on to the country if our culture isn’t right, it won’t work. And I think this is the conversation we need to continue to have. We need change agents around this issue of culture and to see how this may permeate through different aspects of our society including procurement.
Q: I would like you to explain to me the rise in cases of suspicious cash transactions. How would someone go to the bank and withdraw K5 million, K10 million over the counter, are there no laws around this? Are banks allowed to give that much money in cash? How does that happen?
A: Well, it is your money so you can have it and the assumption is that that money is legally obtained. But what we see, where there are huge cash transactions, most of the time, it has to do with people trying to obscure the ultimate beneficial owners to this money. That is where the challenge is. Now, if you take that argument further, there are jurisdictions in the world that have literally limited the extent to which you can transact in cash. In Zambia, it continues to be a challenge that industries that you ordinarily don’t expect to transact in cash are doing so. And you can see a direct link between the incidence of corruption and the transacting in cash. There is a debate at the moment around the cash transaction thresholds the SI 52, some people believing that that instrument is stifling banking activities but the reality around that issue is not to stop transactions but just to say ‘ transactions that are in cash above the particular threshold must be reported to the Centre.’
Q: I also note from your report that you have worked quite well with the Zambia Revenue Authority and you have also indicated that you have identified a number of cases where some companies are externalizing their proceeds from mining activities to offshore accounts. Have you follow up those accounts to find our money and bring it back?
A: Yes we have, and the individuals are known. Some of it is not even actually our effort, some of it is actually effort from our partners through the Egmont group [of Financial Intelligence Units] that will tell us ‘your individual from Zambia is keeping so much money here. Can you check, is it legal or illegal money?’ We will be able to do that. When our job is once done we will send that to law enforcement agencies. That is what we do,
Q: And cases such as the one where some government officials manipuled the payroll system, and payed themselves as much as K4 million, aren’t those clear cases where individuals need to be picked up. Do you know if those individuals have been prosecuted?
A: Yes, we do believe that these are active cases by our colleagues the law enfcoremnet agencies. But we have not yet gotten feedback from them so I would not be able to state whether they have proceeded to court or not.
Q: What kind of flows would you say exist in the government payroll system which could have caused this case?
A: One of the issues that one would immediately speak to, it has to be the quality of controls in the system. If you have low level public officers having to manipulate systems to syphon out funds up to this level, that ought to be worrying. We need to constantly re-look and re-new the quality of our controls to ensure that exactly what I indicated earlier, there are preventative measures not to get things like this occurring. Very closely, it is about us now beginning to look at things like biometric identification because some of this may have to do with individuals that have died and their accounts being abused.
Q: Can you elaborate on the case of an individual civil servant who was earning a monthly pay of K5,000 but received K2.5 million proceeds from environmental related transactions?
A: Relating to the K5,000 and K2,5 million, the bigger discussion which the country should be interested in is that as the country’s financial situation worsens, or as it gets more challenged, focus your eyes on our resources sector. Timber, soil, wildlife and precious stones. We anticipate those sectors coming under increasing pressure in terms of criminality because they have now become an easier means of criminals getting money out of the country. And we think that there needs to be some rethinking on the way we control these aspects of our resources because increasingly we are seeing transactions around gold being reported to the Centre. And therefore we need to think through management of these natural resources and how they can benefit local people.
Q: Are you seeing a trend where some traditional authorities are getting involved in these activities? Or it is the politicians or it is the individual private business people?
A: I think it is a cocktail. You will find some traditional leaders involved in the timber trade or involved in the area of minerals. And normally in conjunction with business people.
Q: We have seen something similar to what you are saying in previous Trends Reports. What do you do if you disseminate the case as FIC and the following year, those individuals are not yet stopped and they continue with their illicit activities? Do you repeat the cases in your trends report? Do you report, in your dissemination, to the law enforcement agencies the same individuals doing the same things or you just?
A: No we don’t. Because firstly if there is a repeat, it will come as the subject of a separate suspicious transaction and therefore we analyze it afresh and if it is related to the previous, we send it as an addition to a previous case. If it is a whole new issue with separate facts, we send it as a fresh report. So, we don’t ignore.
Q: Ah I see, so that means the X, Y Z that we are seeing in the 2019 Report maybe be the same people in the 2018 Report?
A: Yes, it may be the same people. (laughs…)
Q: I would be failing in my job if I don’t ask this question about you in relation to the FIC because you have spoken very well about the culture that has been inculcated at the Centre from the time that you came here. And you are saying the professionalism has been quite high and that has helped the Centre to face the direction that it is facing to win the public confidence. But I am speaking to a man who has decided that he would like to separate from the Centre, people have so many questions around this decision. One question that I would like to ask is; have the criminal elements you have been fighting, finally gotten to you and they have offered you a good job, a better salary and greener pasture elsewhere?
A: (Laughs….) The reasons for my leaving the Centre are obviously personal. But what I would like to say is that I think my mission at the Centre has been accomplished. Accomplished in the sense that we started a new institution without systems, without controls, without human capacity which we set up. But I leave at a time where I have mentored enough young persons in whom I think I have confidence that whether I am here or not the work of the Centre will continue to go on at the level that it is. Reason, culture. You inculcate a certain culture in the Centre in such that individuals become less important than the systems and with that, I will be going away a happy man knowing that the work of the Centre will continue.
Q: I would like to now give you an opportunity to speak to the people who really support the Centre. We have done an oppinion poll on our website asking people which institution they have the most trust in and the FIC stood out. Kindly give them your encouragement and farewell.
A: Thank you for the opportunity Mr Mwenda. The reason that this public confidence you have referred to is there now, it is because from inception, the Centre has tried to work within its mandate. You have catalogued a number of incidences where there would have been external pressure on the institution but I would like to assure people that the mission of the Centre has always been the people of Zambia. Our job is to prevent and detect money laundering and that mission has not changed. I do believe that the Centre will continue at that path and Zambians be rest assured that this is their institution we value the kind of public confidence and support that the public has shown in the Centre and that will continue. Again, the catch word today is culture because the culture in the Centre is really that of performance. You can try to pressure people here, it is highly unlikely that you will succeed.
Q: Thank you very much for the opportunity
A: You are welcome.