Zimbabwe is one of the countries whose banking systems are at the greatest risk of being used by money launderers, according to a new report.
The Basel Anti-money laundering (AML) Index, released September 13, gives Zimbabwe a score of 6.78 out of 10. A score of 10 is the highest risk possible.
Zimbabwe’s risk has worsened this year due to higher risk of human trafficking, the index says.
The Basel index is an independent annual ranking that assesses money laundering and terror financing threats globally, and how governments are dealing with those risks.
“Risk scores are based on data from publicly available sources such as the (EU) Financial Action Task Force (FATF), Transparency International, the World Bank and the World Economic Forum,” the Basel report says.
The index does not measure the actual existence of money laundering activity or the amount of dirty money incurred in the country. It only shows the level of risk that a country’s financial systems can be used for money laundering and terrorist financing.
The index looks at factors such as poor financial standards and transparency, weak political rights and rule of law, poor public transparency and accountability, and perceptions around corruption and bribery.
In Africa, the index assessed just 18 countries. Of these, Zimbabwe was placed on number 11. The DRC at 18 has the highest risk, followed by countries such as Mauritania and Uganda.
Private investors and governments use the Basel Index to gauge the security of a country’s financial systems.
Africa generally does poorly on the global list. Apart from Mauritius and Botswana, most assessed African countries show high risks and low financial transparency standards.
Zimbabwe: losing banking ties
Due to a combination of Western sanctions and Zimbabwe’s own poor regulation, the country has lost at least 102 corresponding banking relationships over the past decade, according to central bank.
In August, Germany’s Deutsche Bank announced it would no longer offer US transactions in Zimbabwe. The latest ranking is more bad news for local banks, and the economy.
In 2020, under its FATF system, the European Union 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. The EU is due to review this position later this month.
“This year’s ranking is particularly important for Zimbabwe as it faces FATF review this month on whether it is kept or removed from the grey list or is downgraded to the blacklist,” says Prosper S Maguchu, a law professor who consults for the Zimbabwe Anti-Money Laundering Institute.
“Falling into this list means that Zimbabwe will not be considered as a safe jurisdiction for preventing terror funding and money laundering, hence the results could be a pretty stark indictment of the country.”
What does all this mean for local banks?
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. International banks have to add extra monitoring measures, which some may consider too costly.
Apart from Zimbabwe’s currency policies and weak regulation, international banks are also wary of falling foul of US sanctions penalties for handling Zimbabwean business.
In 2019, the US Treasury fined Standard Chartered Bank plc US$18 million in fines for handling transactions for Zimbabwean state-owned firms and sanctioned individuals.
Last year, CBZ, Zimbabwe’s largest bank, was cleared of having to pay a US$385 million penalty for processing transactions on behalf of a local company that was under American sanctions. The bank has, since then, started restoring the correspondent banking relationships it had lost.