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 (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 wildliferelated 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 overinvoicing 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 nonfinancial 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 AuditorGeneral’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 AntiCorruption 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.