Malawi Government Continues Investigation into Illegal Forex Externalisation

Grant Kabango

At the Financial Services Lawyers conference held at Nkopola Lodge in Mangochi on September 23, the Deputy Governor of the Reserve Bank of Malawi (RBM), Dr. Grant Kabango, revealed that several multinational companies are now under investigation for financial crimes. The RBM suspects that these companies are guilty of externalising agricultural produce and products by under-declaring sales. That refers to the businesses hiding a significant amount of foreign currency that’s supposed to go to the country.

“By extension, the rest of the funds are being retained outside the country, this is defrauding the country of its export proceeds,” Kabango said.

Grant Kabango
Dr. Kabango (left): This is defrauding Malawi

Although they haven’t determined exactly how much has been lost, it is estimated approximately MK1 billion — another devastating hit for the country’s exchange reserves. In 2016 alone, the Reserve Bank of Malawi revealed that they lost about $980 million (approximately MK718.95 billion) to illegal foreign exchange externalisation and transfer pricing.

While the names of the companies under investigation cannot be disclosed, Kabango said that the RBM has signed a memorandum of understanding with the Financial Intelligence Agency, Malawi Police Service Fiscal and Fraud, Malawi Revenue Authority, and the Office of the Director of Prosecutions. Mary Kachale, Director of Public Prosecutions, said the understanding will expedite the prosecution of cases related to externalisation of foreign currency.

Additionally, the conference also discussed legal aspects impacting the financial sector such as transfer pricing, counterfeit currency, illegal foreign exchange externalisation, and money laundering. This follows RBM Governor Dalitso Kambabe’s warning in February that they will not tolerate such financial crimes.

Illegal foreign exchange is a problem that the RBM has been attempting to address for quite some time, but unfortunately, it only seems to be on the rise. This has been blamed on weak enforcement over Malawi’s banking systems and continually delayed prosecutions. What’s more, given the market’s size and liquidity, it’s not surprising that illegal forex trades are slipping through regulatory cracks.

A post by FXCM on ‘What is Forex?’ notes that this particular financial market is the largest and most liquid in the world, with average trading volumes exceeding $5 trillion (MK3 quadrillion) every single day. With such liquidity, Kabambe pointed out that some areas, in particular, have seen an increase of unlicensed individuals openly selling foreign exchange to the general public – namely Lilongwe, Blantyre, Zomba, and Mzuzu.

“This market is also called “forex black market”. This practice is unlawful and transactions pertaining to such practices are illegal, bold and unenforceable,” he said.

On a more positive note, World News reports that some cases have been successfully prosecuted, with the RBM recovering an equivalent of MK905.7 million. So far, around 10 cases regarding transfer pricing and illegal externalisation currency worth MK49 billion are in the courts.

For individuals looking to avoid illegal foreign exchange situations, it’s best to refrain from interacting with people in the aforementioned areas. Stick to authorised brokers and platforms instead and be familiar with RBM’s guidelines on foreign exchange trading activities before jumping in.