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Old Mutual faces money laundering charges

by Staff reporter
29 Mar 2020 at 07:27hrs | Views
THE Securities and Exchange Commission of Zimbabwe (SECZ) has launched an investigation into suspected illicit activities surrounding trading in fungible stocks linked to three listed companies — Old Mutual, PPC Limited and Seed Co International.

Government recently suspended the fungibility of the stocks.

Fungibility means that shareholders from the three companies would buy shares from the ZSE and dispose of them on offshore markets where they are dually listed.

Old Mutual is listed on both the London Stock Exchange (LSE) and the Johannesburg Stock Exchange (JSE).

PPC is also listed on the JSE, while Seed Co trades on the Botswana Stock Exchange.

Market watchers believe the Old Mutual Implied Rate (OMIR) — determined by comparing share prices of the same stock on other stock exchanges — was increasingly being used as the country's de facto exchange rate, which essentially gave the company's shareholders free rein to influence the value of the local currency.

It is also alleged that fungible stocks provided some of the shareholders a conduit to launder money out of Zimbabwe.

Investigations would reportedly focus on the possible abuse of the 90-day vesting period, which stipulates the time shareholders who bought the shares were supposed to hold on to them before offloading.

Finance and Economic Development Minister Professor Mthuli Ncube recently confirmed to journalists that the investigation would look into possible cases of money laundering.

"There are some illicit transactions which occurred around the stocks that are impacted by the fungibility provision. We wanted to close that hole; that is why we (have) suspended and not banned the provision, while we investigate to make sure that the right fine-tuning is done," said Prof Ncube.

"The abuses also point to money laundering and that is obviously an issue that we want to deal with."

Responding to emailed questions from The Sunday Mail, ZSE chief executive officer Mr Justin Bgoni confirmed that the SECZ had asked for an investigation into possible abuse of fungible stocks.

"Fungibility was permitted subject to certain Exchange Control guidelines, and as the ZSE, market integrity is a key value. ZSE is definitely concerned with the allegations and when we received information to that effect we promptly alerted the regulator, SECZ," said Mr Bgoni.

"ZSE instituted measures to investigate the allegations and is currently carrying out an audit on the matter. ZSE is well-known for compliance and emphasises the same on intermediaries . . .

"The ZSE received allegations that the 90-day vesting period that was effected in June 2019 was not being adhered to. This is what the ZSE is investigating.

"With regards to money laundering, the ZSE relies on intermediaries (stockbrokers, transfer secretaries, custodians and banks) to do the checks as we do not deal directly with the investing clients. Transactions on purchases or disposal of listed securities are facilitated through normal bank accounts."

Last year, the Reserve Bank of Zimbabwe (RBZ) came up with a policy through which investors in the fungible stocks were compelled to hold onto the securities for 90 days.

SECZ chairperson Mr Tafadzwa Chinhamo had not responded by the time of going to print.

Economist and Monetary Policy Committee (MPC) member Mr Eddie Cross said the investigation indicated potential criminality.

"The main reason was allegations by the stock exchange that these three shares were being used for money laundering. The SECZ should publish its report shortly.

"In addition, the shares of these three companies are being used to externalise funds. In the process, they distort their real value as equities," said Mr Cross.

He urged Government to expeditiously conclude the investigation.

Former SECZ board member Ambassador Chris Mutsvangwa said fungible stocks had virtually turned the country into a casino economy for speculators.

"The OMIR was creating more money than RBZ through hiking the exchange rate. Securities (and Exchange) Commission of Zimbabwe is the culprit. And a stock exchange with a 'permanent' clutch of national companies is not serving as a capital market. No new IPO (initial public offering) flotation. No bankrupt company exits. Zimbabwe Stock Exchange is a casino where only the operator Old Mutual-CABS win."

Ambassador Mutsvangwa said while multiple stock listing is a common practice for raising investment funds, a single company could not be allowed to assume too much power over an entire economy.

He said even Western countries would not tolerate such illicit financial practices even though they promoted free market economics.

"Even then it is inconceivable that the Fed (Federal Reserve) of USA would countenance a General Electric-GE Implied Exchange Rate. Nor for that matter a Facebook Implied Exchange Rate. Neither would Germany's Bundesbank accept a Siemens Implied Exchange as a competitor to the euro.

"Equally, Japan and China could not entertain the same from a multiple-listed stock of Toyota and Alibaba respectively. The egregious bourses would be summarily shut down and the obliging executives of the bourses thrown in jail. Governments historically always do so when stock exchanges preponderantly wag the tail of the national economic bull."

Investor discomfort

Some financial analysts are, however, worried.

Head of research at Morgan and Co Mr Batanai Matsika said: "The overall impact is that you are erasing Zimbabwe from the frontier investors market. What this means is that there is going to be limited or no activity at all on the Zimbabwe's stock market . . . "

Asked if the allegations of illicit trading were not enough to justify Government's action, Mr Matsika responded: "In my opinion the risks were limited because you also have stockbrokers and the ZSE itself which oversees such transactions."

Economist Dr Gift Mugano also said the OMIR was not the only factor that moved the exchange rate.

"There were four factors which were moving the exchange rate. These were: the OMIR, parallel market, the interbank market as well as the speculators rate which businesses use to hedge against price increases. So what the (Finance) Minister has done is just to deal with one element out of the four. Killing one rate will not kill the speculation."

The private sector is usually considered as the chief architect of using illicit means to siphon money out of African countries.

The Zimbabwe Anti-Corruption Commission claims that the country has lost US$3 billion over the past few years through illicit financial flows.

Source - sundaymail

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