The solutions to money laundering as a crime in the banking sector in Zimbabwe

APPROVAL FORM

The undersigned certify that they have supervised the student TAFADZWA MURUNGU’S

dissertation entitled “The solutions to money laundering as a crime in the banking sector in

Zimbabwe”, submitted in partial fulfillment of the requirements of the Bachelor of Commerce in

Business Management Honours Degree at Midlands State University.

……………………………………… …………………….

SUPERVISOR DATE

……………………………………… ……………………….

CHAIRPERSON DATE

Tafadzwa Murungu, May 2010 MSU R0645048 1

The solutions to money laundering as a crime in the banking sector in Zimbabwe

RELEASE FORM

NAME OF STUDENT: MURUNGU TAFADZWA

DISSERTATION TITLE: The solutions to money laundering as a crime in the

banking sector in Zimbabwe.

DEGREE TITLE: Bachelor of Commerce Business Management

Honours Degree

YEAR THIS DEGREE WAS GRANTED: 2010

Permission is hereby granted to the Midlands State

University Library to produce single copies of this
dissertation and to lend or sell such copies for
private, scholarly or scientific research purposes
only. The author reserves other publication rights
and neither the dissertation nor extensive extracts
from it may be printed or otherwise reproduced
without the author’s written permission.

SIGNED: ……………………………………………..

PERMANENT ADDRESS: House number 7411

ZIMRE Park, Ruwa

Harare

Zimbabwe

DATE: May 2010

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

DEDICATION

The Murungu family members, you have been source of inspiration. I will remember you for

your sturdy support.

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

ACKNOWLEDGEMENTS

Firstly I would like to be thankful to the Almighty Lord for granting me the opportunity to

pursue enjoying his grace and has blessed me to complete my dissertation.

I greatly appreciate the solid support that I got my family without whom all got could have been

inaccessible. Credit also goes my honourable supervisor Mr. L Mutandwa for his guide

throughout the research project up to this point and time when I am holding this document. To

friends Clifford “Kato” Nonokai, Jenipher Mundopa, Ethel Phiri among others, I also pay my

gratitude for your support for you were a source of inspiration that kept me going. Without

wood, a fire goes out; without your support, this paper could not have been completed, I thank

you all.

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

ABSTRACT

Money laundering or laundering the proceeds of serious offence means any act, scheme,

arrangement, device, deception or artifice whatsoever by which the true origin of the proceeds of

any serious offence is sought to be hidden or disguised. This paper is anticipated to find out the

solution to combat money laundering as a crime in the banking sector in Zimbabwe as the crime

is being continuously committed. In doing this research it points out that money laundering can

be prevented. Also pointed out in the work are the challenges that are being faced in an attempt

to curd the crime as well as the means by which the crime is being committed. Maximum effort

was applied to this paper but it is subject to the limitation related to financial since it was the

time when the country adopted to dollarisation. This is a theoretical result that points out to the

necessity to bring awareness to the employees in the banking sector about the laws concerning

money laundering as well as the people of the republic of Zimbabwe.

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

TABLE OF CONTENTS

TITLE Pages

CHAPTER ONE………………………………………………..………………………………..1

1.1 Introduction……………………………………….…………….……………………………1

1.2 Background of the study…………………………..…………..………….……………..……4

1.3 Statement of the problem …………………………………………………………….………6

1.4 Statement of hypothesis………………..………….………………..………….……………..6

1.5 Objectives of the study……………………….………………………………………………6

1.6 Significance of the study…………………………………………….………………………7

1.7 Delimitations of the study……………………………………….…….……………………..8

1.8 Limitations of the study……………………………...……….……………….……………..9

1.9 Research assumptions…………………………………………….………………………….9

CHAPTER TWO: LITERATURE REVIEW …………………………….……………….…10

2.0 Introduction……………………………..………………………….………….…………….10

2.1 Defining money laundering…………………………………………………….……………10

2.2 Stages in laundering money …….……………………………..…….………….…….……..13

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

2.3 Forms of money laundering……………………………………………..…………….…….13

2.3.1 Cash smuggling……………………………………………………………………..……13

2.3.2 Money laundering through banking institutions…………….…………………….…….15

2.3.3 Money laundering through insurance institutions……………………..……..…………..16

2.3.4 Money laundering through realty or lottery business……………………….……………17

2.3.5 Money laundering through underground banks……………….……………….…………18

2.3.6 International trade based money laundering…………………...………………….….…..18

2.3.7 Money laundering through shell or front company………..…………….……………….19

2.3.8 Money laundering through offshore corporation or offshore financial centre.…………..20

2.3.9 Money laundering through professionals such as lawyers and accountants…………..…21

2.3.10 Money laundering through electronic money transfer………………………..………...22

2.4 Target businesses to prevent money laundering…………………………………….……….23

2.5 Preventive measures…………………………………………………………….………..….24

2.5.1 Customer identification…………………………………………………………………..24

2.5.2 Know Tour Employee (KYE)……………………………………..……………………..25

2.5.3 Legislation..………………………………………………………………………………26

2.5.4 Quality human capital……………………………………………………………………27

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

2.5.5 Reporting suspicious transactions and record keeping………………….……..………..27

2.5.6 Coping with technology…………………………………………………………………29

2.5.7 Education and training…………………………………………………………………...31

2.5.8 Good corporate governance………………………………………………………………32

2.5.9 Offering incentives to banks……………………………………………………………..33

2.5.10 Monitoring physical cross-border transportation………………………………………34

2.5.11 Imposing sanctions on FIs and fines……………………………………………………35

2.5.12 Freezing or seizure of proceeds…………………………………………………………36

2.5.13 General provisions that prohibit the ill-gotten money……………..………………........37

2.6 Challenges in preventing money laundering…………………………….…………………...38

2.6.1 Privacy……………………………………………………………………………………38

2.6.2 Failure to record names in transactions…………………………………………………..38

2.6.3 Operating environment…………………………………………………………………...39

2.6.4 Customer due diligence requirements……………………………………………………40

2.6.5 Conflicting interest………………………………………….……………………………41

2.6.6 Technological changes……………………………………………………………………42

2.6.7 Unwillingness of banks to cooperate……………………………………………………..43

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

2.6.8 Underground banks…………………………………………….………………..………..44

2.6.9 Weak governance…………………………………………………………………………44

2.7 Recommendations……………………………………………………………………………45

2.7.1 Developing countries……………..………………………………………………………45

2.8 The targets for money laundering among other things……………..……………………….4.6

2.9 Impact to the inclusive financial sector……………………………………………………...48

2.10 Failures cases………………………………………………………….……………………50

2.11 Chapter summary………………………………………………..…………………………51

CHAPTER THREE: RESEARCH METHODOLOGY………..……………………………52

3.0 Introduction……………………………………………………….….…………….………..52

3.1 Research design…………………………………………………….………………………..52

3.1.2 Descriptive research............................................................................................................53

3.1.3 Justification of the research design…………..………….………...………………...……53

3.2 Data collection techniques………………………………………….………………………..54

3.2.1 Primary data........................................................................................................................54

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

3.3 Research Instruments………………………………………………......................................54

3.3.1 Personally administered questionnaire……..………………………………………….....55

3.3.3.1 Justification for personally administered questionnaires………....................................55

3.3.2 Personal interviews……………………………………………….………………………55

3.3.2.1 Justification for personal interviews…………………………….……………………..56

3.3.3 Secondary data………………………………………………………………….…………56

3.4 Research population…………………………………………………………………………57

3.4.1Research sample…………………………………………………………….……………57

3.4.2 Sample design……………………………………………………………………………58

3.4.3 Sampling unit……………………………………………………………………………58

3.5 Data presentation……………………………………………………………………………58

3.6 Data editing…………………………………………………………..………………………59

3.7 Data analysis…………………………………………………………………………………59

3.8 Tabulation………………………………………………………………..…………………..59

3.9 Chapter summary……………………………………………………………………………59

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION…60

4.0 Introduction……………………………………………………..…………………………...60

4.1 Questionnaire and interview response rate……………………..……………………………61

4.2 Data presentation analysis and interpretation ………………...……………………………..62

4.2.1 Reason for committing the crime in relation to employee motivation…………………….62

4.2.2 Employee willingness to prevent the crime in relation to corporate governance………….66

4.2.3 Educating the employees about money laundering………………………………………..69

4.2.4 Educating the public about money laundering……………………….................................70

4.2.5 Extent perceived of preventing money laundering………………………………………...71

4.2.6 Challenges in an attempt to prevent money laundering……………………………………72

4.2.7 Techniques used to launder money in Zimbabwe………………………………………….75

4.2.8 Chapter summary……………………………………………………..................................75

CHAPTER FIVE: SUMMARY CONCLUSIONS AND RECOMMENDATIONS…….…77

5.0 Introduction…………………………………………………………………………………..77

5.1 Summary……………………………………………………………………………………..77

5.2 Research conclusions…………………………………………………………….………….78

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

5.3 Recommendations……………………………………………………………….…………..79

References………………………………………………………………………….……………83

Appendices………………………………………………………………………………………87

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

LIST OF FIGURES

Figure 4.1: The reasons for money laundering in relation to employee motivation……………..63

Figure 4.1a: Graphical presentation of analysed data in 4.1..…………...……………………….65

Figure 4.2: Willingness of employees to curb money laundering versus corporate governance..67

Figure 4.2a Graphical presentation of analysed data in 4.2…..…………………………………68

Figure 4.3: Suggested ways of educating the employees………………………………………..70

Figure 4.4: Suggested ways of educating the public……………………………………………..71

Figure 4.5 Extent perceived of prevent money laundering………………………………………72

LIST OF TABLES

Table 3.1: Population and sample sizes………………………………………………………….57

Table 4.1: Questionnaire response rate…………………………………………………………..61

Table 4.2 Interview response rate………………………………………………………………..62

Table 4.3: The level of motivation in relation to reason for committing the crime……………...64

Table 4.4: Employee willingness to prevent the crime in relation to governance……………….67

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

Definition of terms and list of acronyms

Money laundering – convert ill-gotten money into legitimate cash.

Dirty money – money accessed through illegal businesses.

Launderer – one involved in money laundering.

Courier – the one who carries the cash during cash smuggling

Ghost account – accounts without identifiable holders but they exist

Shell Company – companies with no real operating activities

Legitimate cash – lawful cash or cash accessed through legal businesses.

ZABG - Zimbabwe Allied Banking Group

CJA - Criminal Justice Act

BSA - Bank Secrecy Act

FATF - Financial Action Task Force

FSMA - Financial Services and Markets Act

POC - Proceeds Of Crime

WSBI - World Savings Banks Institute

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

KYC - Know Your Customer

CDD - Customer Due Diligence

GOZ - Government of Zimbabwe

ISPs - Internet Service Providers

ICT - Information Communication and Technology

POCA - Proceeds Of Crime Act

FIU - Financial Intelligence Units

SFA - Securities and Futures Authority

FSA - Financial Services Authority

AML - Anti-Money Laundering

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