Zimbabwe ranked among high-risk money laundering countries

RELEASED on September 13, 2021, the 10th Basel anti-money laundering index showed Zimbabwe scored 6,78 out of 10 (where 10 indicates the highest risk level) and has landed in the top 12 of the unenviable list of the high-risk money laundering countries in the world.

The result is an unwelcome development at a time the country is working to be removed from the financial action task force (FATF) grey list. That is also known as a list of countries under "increased monitoring" because of strategic deficiencies in their anti-money laundering, counter terrorist financing and proliferation controls. According to this year's report, Zimbabwe's risk score increased since 2020 due mostly to higher risks of human trafficking.

The Basel Institute is an independent non-profit foundation dedicated to working with public and private partners around the world to prevent and combat corruption.

The Basel AML index to date remains the only research-based risk rating of countries in this field issued by an independent non-profit institution. It is used by the private sector as an established AML country risk-rating tool for compliance purposes, and in the public sector for research and policy measurement.

The Basel AML index measures the world's annual progress against money laundering (ML) and terrorist financing (TF). It has been published annually since 2012.

Money laundering risks are a moving target and they evolve fast, as do the tools and data available to assess them. Thus, the Basel AML is constantly reviewed.

This year's index was compiled using a composite methodology based on 16 indicators relevant to evaluating ML/TF country risk.

These are categorised into five domains in line with the five key factors considered to contribute to a high risk of ML/TF: Shortfall in the AML/CFT framework, poor financial standards and transparency, weak political rights and rule of law, poor public transparency and accountability, and corruption and bribery.

Then again, there is no quantitative data. In practice the Basel index does not measure the actual existence of money laundering activity or the amount of dirty money incurred in the country, but only shows the level of risk or weakness of a country to serve as a place for money laundering and terrorist financing.

As stated, the Basel AML index methodology evolves each year to more accurately capture ML/TF risks, which affects the comparability of the results from year-to-year.

Nonetheless, it is concerning to note that this year Zimbabwe risk marks an increase relative to the previous index when it scored 6,54 and was ranked 21 globally.

Comparability between countries is also severely hampered by a lack of full coverage of countries by FATF fourth-round evaluations.

The Basel index only ranks countries that have gone through the latest mutual evaluation that is to say, an in-depth country peer review analysing the implementation and effectiveness of measures to combat money laundering.

That said, some comparison is necessary to understand the issue. The average risk score across all 110 countries included in the Basel AML index public edition for this year is 5,3 out of a maximum risk rating of 10, compared to 5,22 last year.

In a nutshell, too many countries remain too badly exposed to money laundering and terrorist financing risks. Regional infographics show how countries score in relation to each other.

Africa has the highest overall risk score of all regions. Eighteen African countries were ranked this year and Zimbabwe is ranked at 11.

In the Sadc region it is trailing only three countries — Mozambique, Democratic Republic of Congo and Madagascar.

This year's ranking is particularly important for Zimbabwe as it faces FATF review this month on whether it is kept or removed from the grey list or is downgraded to the blacklist.

Falling into this list means that Zimbabwe will not be considered as a safe jurisdiction for preventing terror funding and money laundering, hence the results could be a pretty stark indictment of the country.

Perhaps even more depressing, money laundering is behind the Illicit financial flows (IFFs) at the heart of Zimbabwean financial woes: undermining service delivery and creating an uncompetitive business climate.

The African Development Bank report estimated that Zimbabwe has lost a cumulative $12 billion in the last three decades through IFFs, ranging from opaque financial deals to tax avoidance and illegal commercial activities.

Rampant corruption, transnational crimes and terrorism in the Cabo Delgado area of Mozambique has increased Zimbabwe's complications, with an impact on its case at the FATF.

As of now, Zimbabwe's focus should be to give its best performance in addressing those areas highlighted in the Basel AML index report.

This year's Basel AML index report stresses that four areas of AML/CFT policy urgently need more attention: A stronger response to threats from virtual assets; a greater focus on prevention of money laundering, not only enforcement; faster and more robust implementation of beneficial ownership transparency measures; and addressing ML/TF vulnerabilities beyond the financial sector among lawyers, accountants, real estate agents and other professions.

Prosper S Maguchu is an associate professor of law and researcher. He is also a senior consultant for Zimbabwe Anti-Money Laundering Institute.