'Banks complicit in forex fraud'

A RESERVE Bank of Zimbabwe (RBZ) statement released yesterday exposed how banks have sidestepped central bank policies to help companies access foreign currency without enough reserves to fund their bids.

The RBZ launched the foreign currency auction system in June last year to ameliorate a dire foreign currency crisis that had haunted the economy since the return of the Zimbabwe dollar in 2019.

By February, the system had allotted about US$800 million to industry, with companies crediting it for stabilising the exchange rate and improving forex availability for raw materials and spares imports.

Under the forex auction system's rules, bidders should hold enough Zimbabwe dollars in their accounts to fund their bids.

But the RBZ said instead of adhering to the rules, banks were offering overdraft facilities to broke companies seeking forex from the auction system, helping gain excess greenbacks unprocedurally.

RBZ governor John Mangudya said he had directed the Financial Intelligence Unit (FIU) to monitor delinquent banks.

"One of foreign exchange auction rules requires banks to ensure that applicants have enough local currency in their accounts to finance their bids," Mangudya said.

"However, it has come to the attention of the bank that some banks are not paying particular attention to this requirement and have instead been extending overdraft facilities to finance their customers' bids. In line with the bank's monetary targeting framework designed to control the growth of money supply, funding of bids through overdrafts and advances is discouraged. Where absolutely necessary, bank lending should be limited to a maximum of 50% of a bid. Under these exceptional circumstances, bidders would be required to have in their accounts a minimum balance equivalent to 50% to cover their bids. The bank's Exchange Control Division and the Financial Intelligence Unit are continuously monitoring users of foreign exchange in the economy in order to deal with the malpractices," he said.

The central bank has banned 12 companies from participating on the forex auction system for indulging in arbitrage activities, the statement said.

It said the Exchange Control Unit and the FIU were investigating 62 entities for malpractices on the forex auction system. Some companies had been abusing the forex offered on the system by deploying it to the black market, central bank sources have said.

Mangudya said the auction system's success had been achieved through market price discovery of the exchange rate and provision of a dependable foreign exchange market.

"Since the inception of the foreign exchange auction system, there has been a significant increase in both the number of bids and the value thereof from just under 100 bids valued at US$11 million at the first auction to the current levels of over 500 bids valued at around US$40 million at both the main and small to medium enterprises SME auctions. The top 100 beneficiaries of the foreign exchange auction system over the past eight months, from June 23, 2020 to February 28, 2021, are listed for public information . It is also important to note that the same entities have been the major beneficiaries of the interbank foreign exchange market during the same period," he said.