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Central ups tempo on forex abuse

TINASHE MAKICHI/SYDNEY KAWADZA
THE Reserve Bank of Zimbabwe (RBZ) is gunning for financial institutions, bank treasury employees and commodity brokers accused of manipulating the foreign currency auction as illicit deals taint the  platform.

The indiscipline, according to sources who spoke to the Zimbabwe Independent this week, has seen bank employees, dribbling systems to illegally access the greenback.

The central bank’s Financial Intelligence Unit (FIU) has been trying various tactics to address the indiscipline but lack of capacity and non-compliance by banks has made the auction platform a gold mine for rent-seekers.

The Independent is well-informed that some companies have been accessing millions of United States dollars on the auction but just basic investigations could not locate their physical addresses.

United States dollars

Some of the briefcase companies have accessed about US$15 million.

This culminated in the suspension of close to 170 companies from participating at the auction but investigations show that some of the firms have flocked back using different shelf companies.

Some companies whose type of business could not be ascertained make up the top 50 of those that accessed foreign currency on the auction in 2021.

The FIU, however, has been in a dilemma

on how to deal with the indiscipline as that will require a detailed investigation to locate all the paper trail but that has not been easy.

At one point FIU invited various companies to carry out the audit but the process proved costly.

“This has been a huge issue, unfortunately doing thorough investigation may require a detailed audit of paper trailing and trying to separate forged documentation from genuine ones. It is not easy.

Close to 170 companies have since been banned from the auction but some of the shareholders of those companies go on to create new companies,” said an RBZ source.

The situation has been compounded by the country’s companies registry system, which has made it difficult for FIU to track some of those shareholders involved in various cases of money laundering and externalisation.

The alleged dribbling of systems has triggered the attention of Treasury and the government. There are indications that Treasury is pushing for an alternative system on foreign currency allocation.

“Treasury is not happy with the foreign currency auction platform. The indiscipline has been unprecedented and a lack of clear plan to address the indiscipline is unsettling Treasury bosses. There are efforts to find another sustainable foreign currency allocation system,” the source said.

RBZ through its arm, FIU is also targeting banks whose employees have been involved in foreign currency dealings through bringing their own companies to the auction.

“These foreign currency trading deals have also been happening in banks and that does not mean they are legal. Those employees, including some bank executives, are now bringing their own companies to the auction. The RBZ is aware of that and there is an ongoing investigation,” the source added.

The Reserve Bank Governor John Mangudya said yesterday the central  bank has put in place measures to enhance due diligence on bids coming to the forex auction system to minimise abuse of the system.

RBZ governor John Mangudya

“We continue to encourage good behaviour in the forex market and to urge banks, as the gatekeepers in their capacity as authourised dealers, to ensure that there are no cracks within the banking system,” he said.

Meanwhile, the challenges facing the auction system have reportedly reached critical levels in the dairy production industry where manufacturers are failing to access forex for importing raw materials while third party importers of the same raw materials receive bigger allocations.

In the end, the third party importers have been selling the raw materials to the manufacturers at a premium leading to an increase in prices of various dairy products.

The same has been happening in the cooking oil industry and this justified the recent spike in cooking oil prices where cooking oil manufacturers are now getting crude oil from third parties due to the foreign currency shortage.

Cooking oil manufacturers are selling most of their products in local currency and have been battling to secure foreign currency on the auction.

The Independent is reliably informed that cooking oil manufacturers were recently summoned by the Ministry of Industry and Commerce to explain the recent spike in cooking oil prices.

The manufacturer’s argument was centred on the failure to access foreign currency on the auction and an influx of third-party crude oil suppliers.

“The RBZ is looking at banning commodity brokers from the auction because this has been tantamount to importing inflation as well as fuelling rent-seeking behaviour. It is unfortunate that most commodity brokers have been the biggest beneficiaries of the auction,” the source said.

Mangudya last month confirmed to this publication that there was a syndicate of shadowy firms that have been systematically raiding the auction system of millions of dollars through raising fake invoices.

This has resulted in the externalisation of millions of United States dollars to South Africa, Dubai and China among other foreign jurisdictions. Zimbabwe’s auction system is reportedly under siege from politically connected socialites who have been mining the greenback without any detection from authorities.

Mangudya has on several occasions warned banks against deliberately ignoring KYC terms, highlighting that it was not the role of the central bank to do due diligence on individual bank clients.

The apex bank is currently monitoring a list of banks which are not complying, citing that funds are being externalised through this intricate scheme.

Last year, a local bank was fined ZW$40 million (US$322 000) over abuse of the auction and several matters of that magnitude are still under investigation.

Mangudya recently disclosed that some of the country’s largest corporates with a consistent appetite for foreign currency were fraudulently delegating a number of “aggregators”, who, in turn, also shop at the foreign currency auction market bidding for the limited United States dollars available.

“This created a fictitious shortage of foreign currency in the country. There are also instances where some of these companies might be bringing goods and equipment as stated on the invoices.”

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