Embargoes throttle Zimbabwe's financial system

Earlier this month, United States President Donald Trump extended the economic sanctions against Zimbabwe by a year, claiming that new Government's policies continue to pose an "unusual and extraordinary" threat to American foreign policy.

"The actions and policies of these persons continue to pose an unusual and extraordinary threat to the foreign policy of the United States," said Trump as he announced the extension.

"I am continuing for (one) year the national emergency declared in Executive Order 13288." The US has maintained its theory that the sanctions are "targeted'"at 141 entities and individuals in Zimbabwe. But the reality of the situation is that the sanctions are broad-based and are squeezing the heart of Zimbabwe's economy - the financial services sector.

The US sanctions on Zimbabwe are guided by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy, and the Zimbabwe Democracy and Economic Recovery Act (ZIDERA), an act passed by the United States Congress which imposed economic sanctions on the country.

Reserve Bank of Zimbabwe Governor Dr John Mangudya has highlighted the effects of sanctions on local banks' ability to access foreign lines of credit, as well as to process international payments.

"It's only a few banks which can take Zimbabwe's risk. Zimbabwe is under sanctions and the sanctions are in three parts. "The first one is ZIDERA, which says no one should give Zimbabwe development finance, be it the IMF, the World Bank or the African Development Bank.

"Secondly there is OFAC, which says that the transactions from Zimbabwe should be scrutinised for compliance risk.

"Third is Zimbabwe's exclusion from AGOA (the African Growth and Opportunity Act a piece of legislation that was approved by the US Congress in May 2000, whose purpose is to assist the economies of sub-Saharan Africa and to improve economic relations between the United States and the region), which means we do not have market access.

"These three pillars have placed immense constraints on the Zimbabwean economy," he said.

The real effects of the sanctions have been to cut off Zimbabwe from the global banking system. Zim banks face de-risking Bankers' Association of Zimbabwe (BAZ) president Webster Rusere said the country was facing a critical challenge of de-risking by a number of global financiers.

De-risking is a practice whereby global financial institutions terminate or restrict business relationships with remittance companies and smaller local banks in certain regions of the world, putting them at risk of losing access to the global financial system.

"We also have a situation where the global financial markets have been de-risking Zimbabwe. We need to find a solution to how we should address the de-risking period," he said.

The country's constrained access to international financing has been worsened by the fact that the country has lost over 100 foreign correspondent banks since 2008.

A correspondent bank is essentially a bank in one country that is authorised to provide services for another bank or another financial institution located in a foreign country, with typical services including currency exchange, handling business transactions and trade documentation and money transfers.

A June 2016 International Monetary Fund (IMF) Discussion Note entitled "The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action" highlighted the following: "Banks are required to comply with economic and trade sanctions, AML/CFT requirements, and anti-bribery and tax evasion regulations applicable in the jurisdiction (s) in which they operate, as well as with those in their home jurisdictions.

"Compliance with regulatory requirements in these areas involves the implementation of internal controls, including customer due diligence, transaction monitoring, record keeping and reporting of suspicious transactions. "The effective implementation of these procedures may be leading banks to terminate CBRs to comply with targeted financial sanctions, or if there is a reason to believe that the respondent bank is involved in money laundering, terrorist financing, or other fraudulent activities."

Although a deeper analysis by the IMF pointed to OFAC rules being "unclear, inconsistently communicated, unevenly implemented." Banks fall foul of sanctions In 2017, CBZ Bank was slapped with a US$385 million fine by OFAC for thousands of financial transactions done on behalf of ZB Bank, then under economic sanctions imposed by the US. And the previous year, OFAC had fined Barclays Bank Plc US$2,48 million to resolve potential civil liability for 159 apparent violations of the Zimbabwe sanctions regulations.

OFAC claimed that between July 2008 to September 2013, Barclays processed 159 banned transactions worth about $3,4 million through financial institutions in the United States, including Barclays' New York branch for corporate customers of Barclays Bank of Zimbabwe Limited that were owned 50 percent or more, directly or indirectly, by a company on OFAC's List of Specially Designated Nationals and Blocked Persons.

Not targeted To the extent that the sanctions are damaging the local financial services and payment systems, they are affecting anyone and everyone associated with Zimbabwe, a fact borne by Econet founder and billionaire Strive Masiyiwa at a meeting of Afreximbank clients last year.

"When sanctions hit the country, every credit line disappeared. You could not talk to anyone, they were shutting down . . . For us as a business, there was one institution that remained and it was Afreximbank."

And just this year, Zimbabwe's money transfer agencies have increasingly been facing problems in meeting their customer obligations owing to the termination of correspondent-bank arrangements between local banks and international finance institutions.