The Financial Intelligence Centre (FIC) has reported a sharp decline in the overall number of suspicious financial transaction reports, but with a record high loss of money from laundering activities.
And the centre has reported that the major drivers for generation of proceeds of crime in Zambia is corruption associated with public procurement.
Meanwhile the Centre has told of a case where a law firm helped in the laundering of K10 million earned from a corrupt government tender and another case of public officials who embezzled K4 million after manipulating the government payment system.
FIC Director General Mary Chirwa stated in her introductory statement accompanying the released 2019 Money Laundering and Terrorist Financing Report that the Centre disseminated 44 intelligence reports to Law Enforcement Agencies with suspected losses valued K984 million, compared to K6.1 billion reported in 2018 from 80 intelligence reports disseminated.
“During the period under review, the Centre received a total of 790 reports comprising of 748 Suspicious Transaction Reports. In addition, the Centre received a total of 149,625 currency transaction reports in the year 2019 compared to 75,592 currency transaction reports received in 2018. This represents a 98 percent increase in the number of currency transaction reports filed with the Centre. The increase was on account of more reporting entities becoming aware of their reporting obligations. Of the total suspicious transaction reports received in 2019, 101 were analysed out of which forty four 44 were disseminated and 57 were closed as there were no reasonable grounds for dissemination,” stated Chirwa.
“As previously stated, one of the major drivers for generation of proceeds of crime is corruption associated with public procurement. During the period under review, suspicious transaction reports received related to procurement corruption reduced. As a result, the number and value of intelligence reports associated with this predicate offence also reduced. Further, the reduction in the number and value of intelligence reports analysed is attributed to unpredictable funding. This adversely affected the Centre’s ability to verify suspicious transaction reports. As a result of which the Centre disseminated 44 intelligence reports to law enforcement agencies with suspected losses valued at K984 million compared to the K6.1 billion reported in 2018 from 80 intelligence reports.”
And according to the report, some mining companies have been repatriating proceeds from mining activities in Zambia to offshore jurisdictions while declaring losses to the Zambia Revenue Authority.
“In addition, analysis of suspicious transaction reports in 2019 indicates that some institutions are operating in Zambia without being registered for taxes. In other instances institutions are registered in the wrong tax category. For example institutions are registered for turnover tax when their turnover has already significantly exceeded the prescribed threshold. Methods employed to evade tax include; (i) Repatriation of proceeds from mining companies in Zambia to offshore jurisdictions while declaring losses in Zambia. (ii) Use of employee accounts by corporates; (iii) proceeds were channeled through employee accounts in order to reduce the revenue and therefore the tax liability. Some corporates continued to employ false accounting techniques to reduce their tax obligations. This was done through group company loans and use of personal accounts for business purposes. (iv) None declaration of exportation of resources such as Rosewood (Mukula). (v) Under valuation of precious stones and base metals that are exported to foreign jurisdictions,” read the report.
The centre reported six cases of money laundering worth an unprecedented K450 million.
“During the period under review, the FIC disseminated six intelligence reports bordering on money laundering compared to 12 in 2018. However, the value of the disseminations increased from K195 million in 2018 to K450 million in 2019. The major predicate offences that contributed to the generation of proceeds of crime were tax evasion and corruption,” the report read in part.
The report cited a law firm that was involved in money laundering activities earned from a a corrupt tender.
“[Case 1]. PEP A, head of a public institution H, manipulated the tender process and influenced the awarding of a contract to company Y for the supply of equipment at an inflated price. He received a percentage of this inflated price in return. [Case 2] Companies MC and PM, foreign owned, were awarded contracts by a public institution headed by P who acquired unexplained wealth after his appointment in the public sector. Company MC transferred ZMW 10 million to a law firm. The funds were then used for the purchase of properties on behalf of P. Company V, another foreign owned company, subcontracted by Company MC, purchased properties on behalf of P. These properties were registered in the names of third parties associated to P. He was subsequently accused of concealing property reasonably suspected to be proceeds of Crime.”
The report cited another case of a foreign millionaire who was involved in the facilitation of tax evasion.
“The Centre received information on suspected fraud involving Mr. X, a foreign national resident in Zambia and shareholder in three (3) companies. It was alleged that Mr. X held assets in excess of USD 30 million in a bank overseas. Of this amount, USD 22 million was from two (2) of his companies in Zambia. A review of the financial statements showed that shareholders had advanced loans to two (2) of the companies that were loss making for the period 2016 to 2018. The analysis revealed that the companies were transferring funds to Mr. X’s personal account in a bank overseas and later received these funds as loans. The high interest payments on the loans put them in a loss making position hence reducing their tax liability. Further, the inquiry revealed that one of the companies was not registered with the Zambia Revenue Authority for any type of tax,” the report read.
On corruption, the Centre reported eight cases worth over K320 million.
“The Centre received a total of eighteen (18) reports involving suspected corruption mostly perpetrated by individuals charged with authority. The Government continues to lose funds that are meant for the provision of public goods and services due to corruption. It was observed that individuals used 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,” read the report.
The centre sited a case where some government officials created accounts of ghost workers whom they paid salaries, accumulatively amounting K4 million.
“There were also a number of reports to the Centre on suspected corruption that bordered specifically on fraud and/or bribery. Public servants were the perpetrators who were paid in order to grant favours to business persons, especially foreign nationals. One of the major sources of corruption continues to be single sourcing of projects which are non-competitive. The contraction of loans on these projects also attracts usury arrangement fees, in some instances up to 9 % of the amount of loan contracted. These fees are distributed between agents and persons responsible for the projects in public institutions. Projects under the Public Private Partnership (PPP) arrangements and loans contracted by quasi Government bodies from private entities are of particular concern,” read the report.
“Public officials with access to payment systems abused their positions and embezzled K4 million. These officials created fictitious accounts onto the system as employees and paid them monthly salaries. The proceeds were used
to purchase various properties.”