RBZ freezes firms’ accounts for suspected money laundering, what does that mean in the Zimbabwean context

The Reserve Bank of Zimbabwe (RBZ) is engaged in a never ending game of Whack-A-Mole. There are too many moles and too many holes for the RBZ to whack every single mole. Besides, for every incapacitated mole, another rises to take its place. Yet seemingly undeterred, the RBZ through the Financial Intelligence Unit (FIU) has frozen some companies’ accounts.

On the 22nd of February the FIU sent a letter to all banks ordering the freezing of bank accounts for the following companies: Transerve, Electrosales, Halsted and Enbee. All four companies are big enough for most of us to recognise those names. The FIU says it noticed unusual activities from these companies and suspects money laundering. 

Banks have been ordered not to process any withdrawals or transfers from the companies’ bank accounts. Deposits and other inflows are allowed though. Banks are to notify the FIU of any activity on those accounts, be it deposits, inbound transfers or any attempt to withdraw or transfer out. 

What is money laundering?

Money laundering is a crime all over the world. If you were to mention money laundering, the average person would think you mean the process of making money generated from illegal activity appear to be from a legitimate source. Recently we were talking about the Amercian couple caught trying to launder US$4.5 billion worth of stolen bitcoin.

Some of the best examples are the ones we see on television, on series like Narcos, where Pablo Escobar pumped his drug trafficking proceeds into a taxi business. On paper it looked as if he had the most profitable taxi business ever but he was merely inflating the actual revenue from the taxi business. The taxis would make hundreds in legit revenue but they would record sales in the millions.

This process works best when the business being used to launder is in the services sector. For example, if a car wash business told you they made US$10000 a day you would be skeptical but you couldn’t prove that figure was inflated. How could you dispute that they got 50 customers a day who paid at least US$200? 

Now, money laundering is only a thing when we are talking about large sums of money. Your neighbourhood jazzman (drug dealer) doesn’t have to launder. No questions will be asked when he spends the small amounts he makes. 

Imagine you had US$10 million though. You could not go on a buying spree. You couldn’t bank that money without having to explain where you got it from. Buying that million dollar Borrowdale Brook mansion would be tricky too, no one is going to accept a million in cash without questions being asked.

That’s where making it seem like your car wash business makes 10,000 a day comes in handy. You could deposit that money and make it appear as if you legitimately made it from your business enterprise. Add a taxi fleet and other service business and you could have the $10m in the system in no time.

Of course Zimbabwe is a peculiar place. With the economy mostly preferring cash, it’s not hard to spend large amounts of cash, up to a point. Add to that corruption in law enforcement and you realise US$10 million can be spent within Zimbabwe with no problem at all.

Laundering in the Zim context

The FIU believes the four companies are laundering money and I gotta admit I’m a bit lost. This is because the FIU did not mention currency manipulation in their notice. Money laundering is not the same as currency manipulation and the Financial Intelligence Unit would definitely know this. 

I imagine most of us thought the four companies were being investigated for using black market forex exchange rates to peg their prices. Or for buying forex on the black market. Neither of which would be money laundering.

Are they saying Enbee has some criminally sourced funds that they are trying to ‘clean?’ I have a hyperactive imagination but even I can’t see Enbee with a flourishing drug enterprise on the side. I might be naive. 

Or maybe we are to stretch the meaning of money laundering to consider the business of using the black market rate to peg prices. See, if a pair of socks costs US$1 and Enbee charges ZWL$225 for it, that would be ZWL$100 more than the auction rate based ZWL$125 they were supposed to charge. The ZWL$100 would therefore represent illegally sourced funds. Trying to bank that $100 would be tantamount to money laundering if we used this reasoning. It’s a stretch though.

RBZ waging wrong war

The RBZ is probably equating currency manipulation with money laundering. That would make the most sense but it leads us back to the Whack-A-Mole analogy.

Currency manipulation is not causing the depreciation of the Zimdollar. Rather the depreciation of the Zimdollar and the insistence that we use a semi-market based forex rate is what is causing the manipulation. Companies need more forex than they can get from the forex auction and so most are turning to the black market. And they can even make a quick profit as a bonus too. Even though that’s illegal. .

That’s neither here nor there. The fact remains that instead of fixing the cause of these arbitrage opportunities, we are busy chasing down anyone who would take advantage of the opportunities. That’s like trying to chase off every fly that lands on a rotten piece of meat. The flies will keep on coming until we deal with the actual problem, the rotten meat. The flies are not the problem.

So when Delta says, 

The tight regulations on accessing foreign currency have resulted in use of runners and currency aggregators which increase the numbers of value chain partners, legal compliance challenges and fraud risks.

From Delta’s Annual Report

You are forced to concede that the situation has descended to chaos. Even Delta is turning to the black market for their forex needs. If that is money laundering, then the FIU should just go ahead and freeze every single bank account. Almost every company is doing this, to get forex and to limit the losses from the fast eroding value of the Zimdollar.

While I would never condone criminal activity, I also understand that immoral, unreasonable or unenforceable laws lend themselves to being broken. You will recall that prior to Zimbabwe dollarising in 2009, it was illegal to have forex in your possession and that law made every Zimbabwean a criminal. Such laws that are likely to be broken by the majority only serve to make law breaking normal. Which is a terrible thing.

The RBZ has been whacking moles for a minute now:

RBZ is coming after businesses involved in currency manipulation

The RBZ Freezes Accounts Of Company Which “Injected Millions Of Dollars In Parallel Market”

RBZ Freezes EcoCash Agent Accounts That Handle Above ZW$100 000 Per Month – Here’s Why That’s Dumb