Kgathi goes after money launderers

SHARE   |   Thursday, 21 December 2017   |   By Ditiro Motlhabane 
Kgathi goes after money launderers

Government moved swiftly last Friday to gazette an extension of the Proceeds and Instruments of Crimes Regulations, 2017 with new powers for seizures to include cars, jewellery, foreign currency, foreign cash holdings, precious metals, precious and semi-precious stones, pearls and other valuables.  It also extends to seizure of businesses operated by suspect, which the state agents have reason to believe could be connected to the alleged crime. The amendment notice, gazetted by Minister of Justice, Defence and Security Shaw Kgathi on December 15, 2017 is meant to augment the Asset Forfeiture Act. The strengthening of forfeiture provisions comes in a week dominated by a hullabaloo over a money laundering scandal unfolding at the National Petroleum Fund (NPF) and misconduct at Botswana Public Officers Pension Fund (BPOPF) by a Director of asset management firm Kgori Capital.   The hullaballoo over the billions of Pula involved in the scandal is not occurring for the first time nor are they isolated incidents. Forget the letters bandied about all over the place between characters in these scandals, and politicians across the political landscape.  After many years of giving looters a blank cheque to enrich themselves with public funds unchecked, suddenly Government is running helter skelter to tighten screws on transgressors. While it is a welcome development to always review and strengthen laws against the ever changing complexity of financial crimes, Government should be pro-active especially with all resources at her disposal. Oversight bodies and Regulators should not sit idle only to react when it is too late to recover billions siphoned out to accounts or investments held elsewhere.

Government levies 

Although it is a noble idea to impose levies on citizens for the economy to earn some revenue, it is becoming abundantly clear that these facilities are now a haven for abuse by those keen on lining their pockets. Emerging evidence shows that management of these billions of Pula assets raised through numerous levies are used without following proper accounting processes and go without any oversight or accounting mechanism. Besides the NPF, there are many levies set up by Government which to date have accumulated billions which the public is never told about their use and that there is proper accounting for such. These include the Natural Disaster Relief Fund, the Alcohol levy, the Plastic levy etc. The least Government has done was to hide behind false pretences that the funds are used for national security when in 2011, after examining the Auditor General's Report the Public Accounts Committee (PAC) found that funds allocated to the natural disaster relief fund had been diverted for use by the Directorate of Intelligence and Security Services (DIS).  Perhaps the most controversial is the alcohol levy, which currently sits at 55%. The Alcohol Beverages Fund was established to promote projects and activities designed to combat alcohol abuse and minimise the effects of alcohol abuse in our society. Although set up to curb alcohol abuse and rehabilitation, the Ministry of Health and Wellness only receives five per cent for that campaign, with 85 per cent going to Government Consolidated Funds, and the remaining 10 per cent to Gender Affairs Department. 

Pension funds

The pension industry is awash with cash amounting to billions of Pula. And hence it is quite easy for this money to be targeted by those seeking every way of enriching themselves.  Cabals of old and young men have formed cartels that create complex criminal networks protected by layers and layers of shareholding in several companies locally and offshore to hide their dirty dealings in multi-million Pula transactions. It is therefore not surprising that when quizzed about apparent reluctance to invest locally to boost the economy, that Botswana Public Officers Pension Fund (BPOPF) complains about liquidity – essentially meaning that there are limited investment opportunities for such large sums of money. Consequently, fund managers use the excuse to invest in more lucrative and larger markets elsewhere in the continent and offshore. It then becomes anybody's guess where they invest, an open season for all kinds of unethical transactions which border on criminality to be sponsored by pension funds money.   In a space of just two years BPOPF has had to terminate contracts for three asset managers due to all kinds of transgressions. Last year, the P60 billion fund terminated a P4 billion mandate from Flemming Asset Management Botswana after discovering irregularities at the asset management firm.  It is a given that BPOPF will fail to recover the total sum of the P830 million mandate held by Capital Management Botswana (CMB) after terminating their partnership agreement in the Botswana Opportunity Partnership (BOP) over breach of contract. BOP is a private equity portfolio, but on numerous instances CMB was found to use the funds to invest in listed companies and start-ups. On the other hand Kgori’s mandate from BPOPF is currently sitting at P3.5 billion, a contract in which they are supposed to invest only in listed companies. The board of the Fund met earlier this week to assess Kgori and determine its fate in view of allegations of money laundering against one of its directors.  Money laundering is defined as ill-gotten funds, disguised as legitimate and then introduced into the financial system, funds accrued from terrorism acts, illicit drug sales etc. It goes on to further state that there are three stages to money laundering, in essence, there has to be illicit proceeds, then those proceeds have to be cleaned up hence the term "laundering" simply by accounting for the funds as legitimate proceeds from a legitimate business. At that stage, the money would all be mixed up circulating in the financial system. In the current saga, it would appear that a transaction was just made to Israel as instructed. 

The regulator

It is telling that as scandals unfold in the public space, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) refuses to be drawn into these matters. They never utter a word under the pretext that they are investigating the matters discreetly. But we all know that they lack the capacity to monitor and regulate these complex transactions. Alternatively they are complicit in the saga. If not, how then does one explain their silence when it is abundantly clear that the industry is populated by unscrupulous characters disguised as businessmen looting public coffers right under their nose?  To its credit, in 2014 the regulator engaged SA-based forensic experts to investigate numerous operational issues which expose BPOPF to risks. While the Fund implemented some of the recommendations, it remains a mystery why others have been shelved; an example being the conflict of interest of the board chairman and an assessment of trustees to ascertain their competence to perform fiduciary functions. Incompetent trustees in the board are a liability that cannot detect poor investments decisions by management and in turn just rubber stamp anything presented to them. An incompetent board cannot pick red flags in the management accounts, which could point to failures and thus cannot intervene with remedies to safeguard public funds in their custody. One shudders to imagine what could happen, should BPOPF – by far the largest fund in the economy – collapse due to mismanagement and looting. With a board of directors with questionable credentials, yet supervising complex billion Pula investments on and offshore; it is not surprising to learn that there is rampant collusion between some senior executives in pension funds and asset managers to misappropriate funds for personal benefit through illegal transactions. For the same reasons asset managers are having a field day, riding roughshod in a free for all industry where they are their own servants and master. How else could fraudulent investments be made with pension funds money with zero accounting or audit of assets for several years, without anybody raising alarm, yet enjoying hefty sitting allowances from every unproductive meeting they attend all year round? 

NBFIRA should move in and save the industry from imploding. This should not be a difficult task because the regulator is already armed with incisive regulations with far reaching powers. The regulator should conduct fit and proper assessment on those applying to enter this monied sector using tools provided to establish any record of criminal convictions such as dishonesty, misappropriation of assets, embezzlement of funds, money laundering, financing of terrorism and fraud, theft, and forgery. Further NBFIRA is empowered to investigate information on financial misconduct of both the individual and the entity in which the applicant is a controller. Indicators shall include but not be limited to financial trouble as a result of inability to manage own affairs, judgement debt or award which remains outstanding or has not been satisfied within a reasonable period, bankruptcy or insolvency proceedings, or property attachment resulting from legal proceedings, bankruptcy or insolvency proceedings in or in respect of an entity applicant which the individual is/was a Key Person/controller. Other indicators include information gathered by the Regulator in the performance of their supervisory duties. Indicators could be the withholding of information from Regulators, a history of non -compliance, failure or refusal to cooperate with regulators, submission of incorrect information, market conduct transgressions and prior refusal of regulatory approval for key positions, suspension from operations, being subjected to regulatory investigations, being statutorily managed or subject to court proceedings by the Regulator. To augment the fit and proper test NBFIRA should also invoke powers vested in them and tools provided to assess whether a person is of good character as outlined in the regulations that come into effect next week.