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‘Top directors from 20 firms face arrest’… as big companies are fingered in forex fiddle

BY SHAME MAKOSHORI

TOP executives and directors from up to 20 big companies face imminent arrest following a Reserve Bank of Zimbabwe (RBZ) investigation into massive multi-million-dollar fraud involving the country’s foreign currency reserves.

Fresh data linking major corporates to the fleecing of the meagre foreign exchange reserves emerged this week, with the central bank exposing how exporters have been tendering fake bills of entry to the foreign currency auction system to access cheap funds which they channeled to the parallel market, the Zimbabwe Independent can reveal.

A high-ranking government source said last night: “I can confirm that directors from about 20 large firms will be nabbed most likely starting tomorrow (today).”

The data, obtained by the Independent, outlines shocking details about how a system that was rolled out to ameliorate a dire forex crisis, has been manipulated to enrich big shots behind leading corporations at the expense of millions.

Eligible companies that have failed to access foreign currency have ended up scaling down or winding up operations.

The document reveals details of how big exporters with easy access to the foreign currency auction system have been bidding on behalf of third parties to circumvent the system.

The RBZ says significant numbers of bids have been inflated, while the big exporters have been creating artificial demand on the auction system by dabbling in related party deals.

The high-level delinquency could explain why the under-fire forex auction system has struggled to fund allotted amounts, accumulating backlogs of up to two months.

At one point, companies said they were owed up to US$200 million in funds allocated at the auction system, a platform that has been credited for saving hundreds of companies from collapse since its launch in June last year.

However, the crisis confronting Zimbabwe is that it is severely under-equipped to track and crackdown on mega fraud, the RBZ says in its six-page document which reviews the auction system’s first year of operation.

“The bank (RBZ) experienced challenges related to the operation of the auction system, which include issuance of false bills of entry, increased artificial demand as big companies created and funded shadow bidders, over-invoicing by related parties for the purposes of externalisation and arbitraging by some commodity brokers and entities,” central bank chief, John Mangudya, said in the document titled Foreign Exchange System One Year Review.

A bill of entry is a legal document that is filed by importers or customs clearance agents on or before the arrival of imported goods. It is submitted to the customs department as a part of the customs clearance procedure. Once this is done, the importer will be able to claim input tax credit on the goods.

“(There has been) under-declaration of domestic foreign exchange sales (which) reduces the amount available to the auction and the same companies submit bids to the auction, putting pressure on the auction system,” Mangudya said.

The paper did not disclose how much has been salted away by looters. But this is not the first time that elaborate backstage transactions linking Zimbabwe’s big companies to fraud and plunder have surfaced.

A US$48 million package released by banks in 2011 to bail out distressed firms was looted by senior executives, according to government officials, who said the looters spent it on expensive cars, waterfront mansions and other luxuries.

Between 2004 and 2005, former central bank governor, Gideon Gono, channelled trillions of Zimbabwean dollars into the country’s industries under a scheme called the Productive Sector Facility to keep failing industries afloat.

Hundreds of firms did not repay their debts, amid reports that some of the funding was also looted by executives.

Mangudya said the auction system crisis was compounded by negative public sentiment that the RBZ was manipulating the exchange rate.

He said scores of “errant foreign auction system participants have been disqualified” and placed under RBZ investigations for abusing the system.

The papers showed that soon after the investigation was completed, a central bank probe netted 21 firms in July for dabbling in parallel market activities or abetting backstage dealings.

The firms were blacklisted.

Mangudya said at the time, investigations by the Financial Intelligence Unit (FIU) continued to expose serious delinquency at the forex auction system since the first 18 “out liars” were named on June 15.

“The bank wishes to inform members of the public of the following corrective and punitive actions that have since been taken against some entities for abuse of the foreign exchange auction system, manipulation of the exchange rate and non-compliance with exchange control rules and regulations,” Mangudya said in a statement.

“In addition to the 18 entities named in the press statement on June 15, 2021, 21 more have been investigated by the bank’s FIU and found guilty of various breaches that include transfer pricing, use of fraudulent import documentation, failure to bank cash and conducting illegal foreign exchange transactions.

“Of the total of 39 entities, 27 have been fined to date and 12 issued with written warnings for aiding or abetting flouting of exchange control rules and regulations.

“The punitive measures include prohibition from participating in the foreign exchange auctions until the full payment of the fines imposed or permanent blacklisting from participating in the foreign exchange auctions, depending on the seriousness of the breach,” he said then.

Introduced in June last year to limit extensive damage inflicted on companies accessing foreign currency from the parallel market, the auction system has been credited for driving hundreds of firms out of problems after injecting about US$1,7 billion to companies that had relied on the black market.

Official rates were this week pegged at about US$1:ZW$88,50 on the foreign auction system, compared to rates of up to US$1:ZW$170 on the parallel market.

“The experience thus far with the foreign exchange auction system calls for the continued enhancement to ensure that the desired objectives of efficient allocation of foreign currency, price discovery and price stability are attained,” he added.

The documents indicated that in June, the RBZ presented a proposal to the government to remove all net exporters from the foreign currency auction system, as part of several measures that were meant to address the auction system’s shortcomings.

The paper did not disclose that this was part of the central bank’s crackdown on rampant vice.

But around the same time, over half a dozen firms were slapped with harsh penalties for manipulating the foreign exchange market.

The crackdown was followed by last week’s bold move to freeze accounts of over two dozen bank accounts for individuals accused of dabbling in the foreign currency manipulation.

“All net exporters will no longer access foreign currency through the auction system,” the central bank chief said in the confidential report obtained this week.

“In the same vein, all companies that sell in foreign currency will be required to utilise their forex first and only revert to the auction for the balance if there is any. Delta and PPC have not been coming to the auction, but utilising their own foreign exchange inflows from local sales for their import requirements.

“It is, therefore, imperative that all other similar companies follow suit and this calls on monitoring and compliance to ensure the same operations occur at companies in similar industries.

“There is also increased demand for foreign exchange emanating from the settlement of blocked funds as some companies domesticate their balances and use the local currency to access funding from the auction purportedly for the acquisition of raw materials requirements.

“There may, therefore, be a need to revalidate some blocked funds as there may have been use of forged documents, increased compliance by exporters to ensure increased foreign currency supply so as to reduce auction system settlement time.”

Further, the RBZ chief said the central bank can enhance the prefunding of the auctions and other structures through authorised dealers (banks) so as to ensure timely settlements.

“Government is to increase its support for the auction. This can be complemented by engaging large exporters so as to raise more funds for the auction. There is a need to give assurance to large foreign currency earners that they would get foreign exchange as and when they need it,” he said.

In a tweet yesterday, the RBZ sent a stern warning to those fuelling the parallel market rates.

“The Financial Intelligence Unit is investigating allegations of currency manipulation and pegging of the ZW$ at 200 to the US dollar circulating on social media. Perpetrators shall be brought to book.”

See also: Ncube threatens companies

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