Rogues wreak havoc on forex auction: RBZ
TINASHE MAKICHI/TINASHE KAIRIZA
ZIMBABWE’S foreign currency auction system is under siege from a cartel of rogue local and international companies externalising millions of United States dollars (USD) under a well-orchestrated scheme that monetary authorities have equated to a “Ponzi scheme”, the Zimbabwe Independent can reveal.
So serious is the matter that Reserve Bank of Zimbabwe (RBZ) governor John Mangudya (pictured) has decided to defer the opening of the auction system this year which was supposed to start on January 11, 2022.
Deferring opening the auction system, the central bank chief noted, would give banks ample time to satisfy new regulations which now compel banks to submit all Know Your Customer (KYC) documents to the RBZ’s Exchange Control Department for vetting before participating on the platform.
At the close of trading last year, US$1 was fetching ZWL108,6660 at the foreign currency auction system.
Mangudya told the Independent this week that a syndicate of shadowy firms was systematically raiding the foreign currency auction system of millions through raising fake invoices, among other clandestine methods, eventually stashing the proceeds in offshore accounts.
This has resulted in the externalisation of millions of United States dollars to South Africa, Dubai and China among other foreign jurisdictions where firms suspected of manipulating the platform hold offshore accounts.
“This syndicate has been raising fake invoices through companies registered in offshore jurisdictions under their ownership. These invoices are raised for goods and equipment never delivered to Zimbabwe.
“Some of these companies have no clear history of origin. We have since penalised some banks over failure to do proper due diligence on their clients. This is one of the reasons why the RBZ tightened its demands on banks,” Mangudya said.
“All banks are now mandated to submit documents to the exchange control department before participating in the auction,” he added.
Mangudya warned banks against ignoring KYC terms, saying it was not the role of the central bank to do due diligence on individual bank clients.
The apex bank is monitoring a list of banks which are not complying with laid rules.
Banks, however, deny abetting firms from spiriting away hard currency from the auction system.
Bankers Association of Zimbabwe (BAZ) president Ralph Watungwa said banks were in compliance with the central bank regulations.
“BAZ is not aware of any member being penalised over failure to do proper KYC on their clients accessing the RBZ foreign currency auction system. Banks work closely with the central bank to ensure compliance with set guidelines,” Watungwa said.
With Zimbabwe in the throes of an intractable economic crisis characterised by acute foreign currency shortages and exchange rate volatility, the apex bank has been battling to shore up foreign currency reserves and incentivising exporting firms as part of a raft of measures to rescue the struggling economy.
The foreign currency auction system was introduced by the RBZ in 2020 to bring confidence, boost foreign currency availability, stabilise the exchange rate and curtail the parallel market.
However, RBZ penalised 18 companies for manipulating the auction system and violating Statutory Instrument (SI) 127 of 2021. Primarily, the piece of legislation prohibits firms from abusing the foreign currency auction system.
The RBZ named some of the alleged culprits but the firms denied any wrongdoing,
At the heart of the scandal, Mangudya disclosed, are some of the country’s largest companies which are allegedly delegating a number of “aggregators”, who in turn, shop at the foreign currency auction market for the United States dollars.
“This created a fictitious shortage of foreign currency in the country,” Mangudya said.
Resultantly, the central bank has been battling to clear a backlog of foreign currency allotment which stood at US$270 million in October 2021.
The RBZ has been financing the auction system from external loans extended by the Africa Import and Export Bank (Afreximbank). By May 2021, Treasury announced that the apex bank owed over US$1,7 billion to Afreximbank borrowed between December 2017 and December 2020.
Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza challenged Mangudya to provide evidence of firms abusing the foreign currency auction system.
“We also urge whoever is alleging to provide full evidence so that these allegations can be followed expeditiously. We do not condone any bad behaviour from our members.
“CZI’s position is that any company breaching laws must be brought before the courts. If found guilty it must face the consequences.”
Economist Victor Bhoroma said with Zimbabwe losing US$1,5 billion annually through illicit financial flows, the RBZ must take punitive measures against banks aiding criminality.
“The penalisation is the role of the apex bank in almost every market. Banking has to follow KYC standards to protect depositors and reduce Illicit Financial Flows (IFF).
“The abuse of the auction system is well known from allocations of foreign currency to companies trading in foreign currency to diversion of foreign currency proceeds to the local market or no importation of commodities,” Bhoroma said.
Since the inception of the foreign exchange auction system on June 23, 2020 to the end of December 2021, US$2,5 billion was allotted to key sectors of the economy with US$2,2 billion given through the main auction and US$358 million through the SMEs auction.
The bulk of the funds allotted in 2021 (62%) went towards payment for raw materials (US$777 million) and machinery and equipment (US$444 million) and US$749 million, representing 38% of the total allotments, meant for consumables and pharmaceuticals.
