Merlyn Mwanza
The Financial Intelligence Center has observed that there was unusual increase in the use of cash in transactions in 2021 despite the growing easy of transacting through electronic payment systems across the financial sector.
And the FIC froze 55 bank accounts held with eight commercial banks to allow for further verification and analysis, indicating that the amounts frozen were US$30.3 million, K292.9 million and Euro 1,685.31, and that the majority of the accounts frozen were on grounds of suspected theft, corrupt activities, tax evasion and money laundering.
In the 7th Miney Laundering and Terrorist Financing 2021 Trends Report titled Cash Bonanza, FIC reported that the trend for using cash was observed in several sectors of the economy, notably the banking, construction, manufacturing, agriculture, legal services and real estate.
The report said the trend was also observed with suppliers engaged in public procurement, especially during the first, second and third quarters of 2021, and that the prominent influential persons (PIPs) and their associates facilitated the awarding of contracts and were mostly beneficiaries of these contracts.
The report states that during the period under review, the majority of STRs submitted related to the use of cash by foreign nationals that had incorporated companies using Zambian nationals as proxies, saying the foreign nationals who were identified as beneficial owners would transact on the accounts with different banks with the sole purpose of externalising funds, in the guise of importing goods from foreign jurisdictions, with deposits being made into different accounts by related parties and immediately the funds would be transmitted to a foreign country, with Asia being the main destination.
“Another trend observed from the analysis of STRs involved account holders receiving several large deposits from third parties located in different parts of the country inconsistent with customer profile. The account holder would immediately withdraw cash equivalent to the amounts deposited,” the report stated in part. “Another trend observed involved suspicious high value transfers of cash deposits into lawyer client accounts and the law firms would in turn transact on behalf of their clients. In some instances, a trend was observed in which bank officials were noted to have assisted PIPs to transact through the financial system using bank officials accounts.”
The report also made mention of several incidences of individuals publicly displaying huge piles of cash, with the individuals suspected to have been associated to or seen wearing particular political party regalia who in most cases were close associates with PIPs, with one of the pictures in the report showing the famous photo of a man wearing PF regalia and holding huge stashes of cash in his hands while stepping on the other huge stashes spread across the room he was in.
The report says a number of high value properties were bought by PIPs and their associates using cash or transfers and the funds were suspected to be proceeds of corrupt activities, and that the use of proceeds of crime to acquire property led to price distortion in the property market especially in relation to underdeveloped land, citing an example where an individual made a cash part payment of K7 million towards acquisition of a property with purchase consideration in excess of K11 million upon further verification and it was established that the money was kept at the home of the purchaser.
The report depicted case studies of suspected corruption and money laundering where company B was awarded a government contract five months after its incorporation, with the same company having three shareholders, Mr Q a foreign national resident in Zambia, company Y a Zambian incorporated company and company R, a European based company.
Mr Q was also a shareholder in company Y.
“Company R remitted USD 3 million to Mr Q’s personal account. Mr.Q made multiple cash withdraws amounting to ZMW 4.5 million and further transferred USD400,000 to two senior public officials, one of them being CEO of a public institution that awarded the contract to company B,” the report stated, adding that three individuals were arrested and charged for corrupt practices and possession of property suspected to be proceeds of crime, noting that limited charges were preferred compared to the actual offences suspected to have been committed, with suspects being discharged though nolle prosequi.
Another case cited is where a PIP Z who was the head of a government institution influenced the awarding of contracts to company A, with that company being a Zambian incorporated company in which PIP Z was a major shareholder, with the same one also facilitating the awarding of contracts to a local company Y, which had foreign nationals as its major and was funded by two foreign companies (S and T), despite company T having being blacklisted for engaging in corrupt practices by an international organization based in Europe.
The local company with foreign nationals as major shareholders made a number of local bank transfers to senior public officials, and that the public official behind the whole arrangement purchased properties including motor vehicles valued at K3 million using cash.
FIC observed that the real cases committed involved suspected corrupt activities by a public official, suspected abuse of office and suspected money laundering but the public official was charged with an offence of concealing property reasonably suspected to be proceeds of crime, and that FIC noted that the limited charges were preferred compared to the actual offences suspected to have been committed with the case resulting in the acquittal of the public official in the courts of law.
Another case involves a Zambian company which received a payment of K763 million from a Ministry (N), with the company then transferring the funds to another shell company which later transferred the funds to another company (M). The lawyer who was managing the affairs of company M facilitated the transfer of K280 million to a law firm where the lawyer is a partner, with the K280 million being placed in a fixed deposit with a bank (B) to accrue interest.
However, the interest was never received by company M, but the lawyer who facilitated the transfer of the transaction facilitated a transfer of K15 million to his personal account, and that the same lawyer made several transfers from company M to three law firms in the amounts of K650,000, K500,000 and K500,000 and there was also a transfer of K250,000 to a prominent lawyer who is also a PIP.
In another irregular transaction, the lawyer who handled the affairs of company M received a payment of over K750 million from a Ministry, with the same lawyer transferring K700 million to the law firm where he is a partner.
“It was then noted that over ZMW 600 million was placed in a fixed deposit for a month at Bank C to accrue interest. Interest of over ZMW 10 million was accrued and was withdrawn in cash by Lawyer U. Similarly, the latter also transferred over K100 million to Bank K and placed it in a fixed deposit and when it matured with ZMW 2 million in interest, Lawyer U withdrew the interest and placed the principle of ZMW 100 million in a fixed deposit. Lawyer U also made transfers from Company M account of ZMW 28 million to a company D which was later transferred to Law firm Q. There was also a transfer of ZMW 19 million from company M’s account to company Y, an entity with questionable reputation controlled by PIP Z,” the report stated in part.
With this matter too, FIC noted that limited charges were preferred compared to the actual offences and that the suspect was discharged through a nolle presequi.
Another matter involves a chain transaction which ended up with a law firm R owned by a lawyer received K100 million cash deposits from a political party and other PIPs associated to the political party a few months before the 2021 general elections, and that of the K100 million, K85 million was deposited by a senior party official and K15 million was deposited in cash by several PIPs associated to the political party, and that the source of cash was unknown as the political party had no known traceable sources of income.
The lawyer involved subsequently transferred a total of K96 million to several media houses across the country including radio stations, social media pages, television stations, outdoor advertising companies and newspapers and that the rest of the funds were withdrawn as cash by the lawyer.
The FIC has recommended that the government should introduce a limit or threshold for cash transactions, and that they should also consider a limit or threshold for payment for public goods and services.
FIC also recommended that the Zambia Revenue Authority must consider introducing a tax on cash transactions to encourage the use of other forms of payments, and to reintroduce the measures that existed under SI 55 to monitor the externalisation of funds.
