TINASHE MAKICHI
International financial institutions have threatened to terminate correspondent banking service with Zimbabwe banks amid growing suspicion it is being used as a conduit for money laundering and financing terrorism, it has emerged.
They believe the service is being manipulated by politically exposed individuals in Zimbabwe, with some already on the sanctions list, a move which has seen some local lenders and correspondent banks being fined.
Correspondent banks act as an intermediary or agent of local banks, conducting money transfer transactions and facilitating foreign currency exchange and payments on behalf of local financial institutions.
Correspondent banks are used by domestic banks to service transactions that either originate or completed in foreign countries.
This means, domestic banks use correspondent banks to gain access to foreign financial markets and serve international clients without having to open branches abroad.
Multiple well-placed sources told Business Times this week that the money services bureaus (MSB), among others, were on the verge of being terminated.
It is understood that several correspondent banks have since told local financial institutions to voluntarily stop offering the service or risk termination of the correspondent services.
Contacted for a comment this week, the Bankers Association of Zimbabwe president, Ralph Watungwa, told Business Times that it was a risk appetite issue.
“I think each bank has its own reasons, so better ask those that have stopped banking them. It’s a risk appetite issue I am sure,” Watungwa said.
A well-placed Reserve Bank of Zimbabwe (RBZ) source, who preferred anonymity, said yesterday that most local financial institutions are in the process of de-risking, a move which entails stopping various services around money transfer agents.
“This is a matter around the issue of de-risking which started some years ago and was rampant in East Africa because MSBs were easily manipulated for money laundering and financing of terrorism,” one source said.
He added: “The main issue is that there is suspicion that some MSBs have been manipulated by politically exposed people especially in Zimbabwe with some already on the sanctions list and that has seen most financial institutions ending up being fined as well as various correspondent banks.”
Another source at the RBZ, who also asked not to be named, told Business Times that several correspondent banks have raised concerns over the service. The correspondent banks, the source said, had to shoulder penalty burdens at times.
“Most international banks have since discontinued such things [money services bureaus] because most of their correspondent banks have been raising concerns over these products. In most instances those banks were fined heavily. This has become a concern even for local banks that might see correspondent services being terminated as well,” the source said.
Efforts to get a comment from Financial Intelligence Unit (FIU) director-general, Oliver Chiperesa, were futile.
Business Times heard this week that a number of correspondent banks have been suffering serious financial losses from various punishments by Office of foreign Asset Control (OFAC), a department of US Treasury that is charged with enforcing economic and trade sanctions imposed by the US government against countries and individuals. OFAC was created in the 1950s.
Business Times can report that lenders such as Stanbic Bank Zimbabwe and Standard Chartered Bank of Zimbabwe, among others, have since discontinued offering money transfer services.
Stanbic, the local unit of Standard Bank, is the latest lender to have its US dollar correspondent banking services — which are key to facilitating foreign currency exchange and payments — terminated by an international bank.
In 2020, the European Union (EU) added Zimbabwe to a list of about two dozen countries whose financial regulations are deemed not strong enough to prevent money laundering and terrorism financing.
Among countries added last year were Botswana, Ghana, Mauritius and Zimbabwe.
Ghana has since been removed from the list.
Inclusion on the EU blacklist means that financial transactions between Zimbabwe and Europe get extra scrutiny to avoid “deficiencies” that may be used by money launderers and terrorist financiers.
Banks have to add extra monitoring measures, which some may consider costly.
The EU measures have been a sore point in African and EU relations.
The African, Caribbean and Pacific has previously described the listing process as ‘unilateral and discriminatory’.
Apart from Zimbabwe’s currency policies that make foreign transactions difficult, banks are also wary of falling foul of US penalties for handling Zimbabwean business.
In 2019, the US Treasury fined Standard Chartered Bank Plc US$18m for handling transactions for Zimbabwean State-owned firms and sanctioned individuals.
Last year, CBZ, Zimbabwe’s largest commercial bank by assets, was cleared of having to pay a US$385m penalty for processing transactions on behalf of a local company that was under American sanctions.
Recently the FIU tightened screws on the operations of all banks, bureau de change and money transfer agencies providing domestic money remittance service in foreign currency.
Through a recent circular, Chiperesa announced financial controls aimed at ensuring that financial institutions are not used as unwitting conduits that facilitate money laundering, terrorism financing and illicit transactions.
In doing that, the FIU has set a maximum withdrawal threshold at US$500 per transaction and up to US$2000 per calendar month for a customer with a bank account with the sending institution.
For walk-in customers with no account with the institution, the maximum withdrawal threshold has been set at US$250 per transaction, up to US$1000 per calendar month.
In a bid to ensure sanity in this sector, FIU noted that domestic foreign currency remittance services shall be permissible only for person-to-person transfers. Corporate entities are expected to use inter-account transfers to effect business payments.
In addition, financial institutions were also ordered to comply with and implement all anti-money laundering and combating the financing of terrorism requirements, including customer due diligence, transaction monitoring as well as identifying and reporting suspicious transactions to FIU.
Financial institutions were required to assess the money laundering and terrorism financing risks and put in place necessary controls in compliance with Section 12B (4) of the Money Laundering and Proceeds of Crime Act (Chapter 9:24).
The measures come after FIU and RBZ noted that a number of financial institutions including banks, bureau de change and money transfer agencies are now providing domestic money remittance services in foreign currency.
