Illicit financial flows: How local businesses rob the economy

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By Nkosana Dlamini 

ACUTE foreign currency shortages in a country relying heavily on imports, coupled with a harsh economic and banking environment, have exacerbated the scourge of illicit financial flows (IFFs) by some Zimbabwean companies.

IFFs involve illegal movements of money or capital from one country to another.

An investigation by has established that the practice of illegally trading in foreign currency is rampant and has taken on a cross-border dimension through IFFs.

According to Global Financial Integrity, Zimbabwe could have lost a cumulative US$2,8 billion (representing an annual average loss of US$276 million) during the period ranging from 2004 to 2013.

Another study by African Forum and Network on Debt and Development (AFRODAD) on IFFs in the sectors of Mining, Wildlife and Fisheries estimated that during the period 2009-2013, Zimbabwe lost US$2,83 billion, through illicit flows, translating to an annual average of US$570,75 million.

Christopher Mugaga, chief executive officer of Zimbabwe National Chamber of Commerce, says companies have been driven to illicit actions by the tough business environment.

“Confidence in the banking system is relatively low,” Mugaga said.

“Because of the loss of value due to the high inflation, any Zimbabwean businessperson would rather hold a US dollar account rather than an RTGS dollar, to preserve value [Companies’] actions border on the criminal…the environment is now out of hand.”

Petroleum dealer Patricia Mandizvidza Dzimbabwe says companies are entering the black market to source scarce foreign currency.

“Most of the people go to the black market…I for one though do not do that as I do not procure any raw material from outside,” Dzimbabwe said.

But one manager of a detergent maker, who agreed to speak on the condition of anonymity, said his company employs ‘runners’ to hunt for illegally-traded US dollars and South African rand.

“Zimbabwe’s business situation does not reward honesty,” he said. “To avoid being caught and blacklisted, I leave the task to my runners to do the dirty work.”

He added that the same company electronically transfers hundreds of thousands of Zimbabwean dollars into friends’ and relatives’ local bank accounts to procure manufacturing material from outside the country.

Sometimes the transferred cash is quickly converted into United States dollars and spirited away under the guise of procuring material from outside.

For delivered imports, runners often charge steep premiums of up to 50 percent, according to Eddie Cross, an anti-corruption campaigner and the former general manager of government-owned Cold Storage Commission.

“The main victim is customs because the [runners] often don’t pay duty,” said Cross. “The worrisome part is that public companies are also involved. Authorities have no means at all of knowing where these companies get the foreign currency or have no means to levy the amounts paid as commission. In fact, the commission is often taken out of the country,” he added.

The Zimbabwean government has introduced stringent limits of US$2,000 in cash per trip out of the country.

Last year, a group of eminent individuals and firms who have used illegal channels to spirit away foreign currency were named in the national press by government amid indications they collectively moved close to US$1 billion to different world territories.

The funds were externalised through payment of goods not received in Zimbabwe often in cash or under the guise of purchasing goods from countries such as China, Singapore, United Arab Emirates and South Africa. Most goods were never delivered while no one was arrested for the offences.

The country’s official inflation rates are now hovering at above 300 percent, and according to the International Monetary Fund, prices are rising almost daily while wages remain stagnant.

A month ago, a single US dollar could fetch ZWL$9 on the parallel market and at some point a few weeks ago, a single US dollar traded for ZWL$23.

The increases have eaten away at the disposable incomes of many.

Businesses are finding this unsustainable.

To remain operational, manufacturers have latched onto every small opportunity availed by government’s snap policy changes.

Government’s recent foreign currency retention scheme has been the latest opportunity for firms to make extra money outside their core businesses.

Under the scheme, manufacturers are allowed to keep 80 percent of their foreign currency earnings over a period of up to 30 days after which the funds should be compulsorily converted into local currency often using the less attractive inter-bank rate.

This window is to allow the firms to re-equip. The remaining 20 percent is immediately exchanged into local currency at the prevailing official rate by authorities but still belongs to the firms.

Government also relies on the export earnings by the companies to acquire scarce foreign currency to procure drugs, fuel and other essential imports key to its operations.

“The measures are stringent. There is not much business you can do with the money in just 30 days. As a result, companies are simply reinvesting the money through illegal forex trade,” said a paper dealer who spoke on the condition of anonymity.

“Companies now divert the US dollars onto the black market and within that period, the monies are ‘spinned’ or multiplied many times,” he said. “These are powerful individuals working in cahoots to line their pockets. The money is deposited outside the country in cash or it is converted to property to avoid detection by authorities.”

In August this year, Zimbabwe’s Prosecutor General Kumbirai Hodzi filed a court application seeking authority to seize, on behalf of the State, former Zimbabwe Revenue Authority employee, Kennedy Nyatoti’s US$150, 000 wealth which he acquired during a two-year employment period in which his total earnings amounted to US$44, 000. The case is still pending before the court. 

Zimbabwe Anti-Corruption Commission (ZAAC) spokesperson John Makamure said the statutory anti-graft body only acts on cases reported to it.

“Zacc will act on any reported cases. There are no cases that we shy away from for as long as the suspected case has been reported to Zacc.

“Externalisation illicit financial flows are a form of corruption,” he said.

Independent veteran business journalist and financial expert Lennox Mhlanga says this has been allowed to persist and even spread because Zimbabwean authorities have ignored some of the illegal dealings by individuals with links to the country’s rulers.

“All this [is] happening in the absence of any accountability steps taken by the authorities. There is nothing that can stop a company from abusing the facility for as long as RBZ has not put in place an accountability mechanism,” he said.

In December last year, former youth empowerment lobbyist Acie Lumumba, who had just been drafted into Finance Minister Mthuli Ncube’s advisory team, let the cat out of the bag when he fingered oil mogul Kudakwashe Tagwirei as the godfather behind the multi-billion-dollar illegal foreign trade in Zimbabwe.

He was quickly dismissed from the job while a later investigation into the named culprits cleared them from the charges.

But last month, companies owned by Tagwirei had their bank accounts frozen by the central bank’s financial intelligence unit amid claims they were heavily involved in illegal foreign currency trade.

The companies are Sakunda Holdings sister companies; Access Finance, Spartan Security and Croco Motors.

Tagwirei has never granted interviews to journalists on issues his relating to his businesses and private life. 

Sakunda Holdings Chief Operations Officer Charles Chitambo said the firm has chosen not to speak to the press about the matter.

“The reason why we are quiet is that we are still operating and we are not talking to the press about it,” he said.

He referred this reported to the central bank, which did not respond to repeated requests for an interview.

This story was produced by It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at The content is the sole responsibility of the author and the publisher.