Anti-money laundering and counter-terrorist financing measures Zimbabwe Mutual Evaluation Report September 2016 Anti-money laundering and counter-terrorist financing measures Zimbabwe Mutual Evaluation Report September 2016 Mutual Evaluation Report of Zimbabwe-September 2016 1 The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) was officially established in 1999 in Arusha, Tanzania through a Memorandum of Understanding (MOU). As at the date of this Report, ESAAMLG membership comprises of 18 countries and also includes a number of regional and international observers such as AUSTRAC, COMESA, Commonwealth Secretariat, East African Community, Egmont Group of Financial Intelligence Units, FATF, IMF, SADC, United Kingdom, United Nations, UNODC, United States of America, World Bank and World Customs Organization. ESAAMLG’s members and observers are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism and proliferation, in particular the FATF Recommendations. For more information about the ESAAMLG, please visit the website: www.esaamlg.org This document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. This assessment was conducted under the responsibility of the ESAAMLG, adopted by the Council of Ministers at its September 2016 Plenary meeting. Citing reference: ESAAMLG (2016), Anti-money laundering and counter-terrorist financing measures - Zimbabwe, Second Round Mutual Evaluation Report, ESAAMLG, Dar es Salaam http://www.esaamlg.org/reports/me.php © 2016 ESAAMLG. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the ESAAMLG Secretariat, P.O.Box 9923, Dar es Salaam-United Republic of Tanzania Tel: +255 22 2667895/7679 Fax No: +255 22 2668745 Email: Contents TABLE OF ACRONYMS AND ABBREVIATIONS ............................................................................. 5 Executive Summary .................................................................................................................................. 7 A. Key Findings ................................................................................................................................... 7 B. Risks and General Situation .......................................................................................................... 8 C. Overall Level of Effectiveness and Technical Compliance .................................................... 10 D. Priority Actions ............................................................................................................................ 17 E. Effectiveness & Technical Compliance Ratings ............................................................................. 19 MUTUAL EVALUATION REPORT .................................................................................................... 21 Preface....................................................................................................................................................... 21 1. ML/TF RISKS AND CONTEXT .................................................................................................... 22 1.1 ML/TF Risks and Scoping of Higher-Risk Issues-Overview of ML/TF Risks ................... 23 1.2 Materiality ..................................................................................................................................... 26 1.3 Structural Elements ...................................................................................................................... 27 1.4 Background and other Contextual Factors ............................................................................... 28 2. NATIONAL AML/CFT POLICIES AND COORDINATION .................................................. 41 2.1. Key Findings and Recommended Actions ............................................................................... 41 2.2. Immediate Outcome 1 (Risk, Policy and Coordination) ......................................................... 42 3. LEGAL SYSTEM AND OPERATIONAL ISSUES ....................................................................... 50 3.1 Key Findings and Recommended Actions .................................................................................... 50 3.2 Immediate Outcome 6 (Financial intelligence ML/TF) .......................................................... 51 3.3 Immediate Outcome 7 (ML investigation and prosecution) .................................................. 58 3.4 Immediate Outcome 8 (Confiscation) ....................................................................................... 64 4. TERRORIST FINANCING AND FINANCING OF PROLIFERATION .................................. 68 4.1 Key Findings and Recommended Actions ............................................................................... 68 4.2 Immediate Outcome 9 (TF investigation and prosecution) ................................................... 69 4.3 Immediate Outcome 10 (TF preventive measures and financial sanctions) ........................ 72 5. PREVENTIVE MEASURES ............................................................................................................ 77 5.1 Key Findings and Recommended Actions ............................................................................... 77 5.2 Immediate Outcome 4 (Preventive Measures) ......................................................................... 79 6. SUPERVISION ................................................................................................................................. 88 6.1 Key Findings and Recommended Actions .................................................................................... 88 6.2 Immediate Outcome 3 (Supervision)......................................................................................... 89 7. LEGAL PERSONS AND ARRANGEMENTS .............................................................................. 97 7.1 Key Findings and Recommended Actions ............................................................................... 97 7.2 Immediate Outcome 5 (Legal Persons and Arrangements) ................................................... 98 8. INTERNATIONAL COOPERATION ......................................................................................... 107 8.1 Key Findings and Recommended Actions ............................................................................. 107 8.2 Immediate Outcome 2 (International Cooperation) .............................................................. 108 Mutual Evaluation Report of Zimbabwe-September 2016 3 TECHNICAL COMPLIANCE ANNEX ............................................................................................. 114 Recommendation 1 - Assessing Risks and applying a Risk-Based Approach ............................. 114 Recommendation 2 - National Cooperation and Coordination ..................................................... 117 Recommendation 3 - Money laundering offence ............................................................................. 118 Recommendation 4 - Confiscation and provisional measures ....................................................... 121 Recommendation 5 - Terrorist financing offence ............................................................................. 123 Recommendation 6 - Targeted Financial Sanctions Related to Terrorism and Terrorist Financing ............................................................................................................................ 125 Recommendation 7 – Targeted Financial Sanctions Related to Proliferation............................... 127 Recommendation 8-Non-Profit Organisations ................................................................................. 127 Recommendation 9 – Financial Institution Secrecy Laws ............................................................... 130 Recommendation 10 – Customer Due Diligence Laws ................................................................... 130 Recommendation 11 – Record Keeping ............................................................................................. 135 Recommendation 12 – Politically Exposed Persons ......................................................................... 135 Recommendation 13 – Correspondent Banking ............................................................................... 137 Recommendation 14 – Money or Value Transfer Services .............................................................. 138 Recommendation 15 – New Technologies ........................................................................................ 139 Recommendation 16 – Wire Transfers ............................................................................................... 139 Recommendation 17- Reliance on Third Parties Laws .................................................................... 143 Recommendation 18 – Internal Controls and Foreign Branches and Subsidiaries ...................... 144 Recommendation 19 – High Risk Countries ..................................................................................... 145 Recommendation 20 – Reporting of Suspicious Transactions ........................................................ 146 Recommendation 21 – Tipping-Off and Confidentiality................................................................. 146 Recommendation 22 – DNFBPs: Customer Due Diligence ............................................................. 147 Recommendation 23 – DNFBPS: Other Measures ............................................................................ 148 Recommendation 24 – Transparency and Beneficial Ownership of Legal Persons .................... 148 Recommendation 25 – Transparency and Beneficial Ownership of Legal Arrangements ......... 153 Recommendation 26 – Regulation and supervision of financial institutions ............................... 156 Recommendation 27 – Powers of supervisors .................................................................................. 158 Recommendation 28 – Regulation and supervision of DNFBPs .................................................... 159 Recommendation 29 - Financial intelligence units ........................................................................... 162 Recommendation 30 – Responsibilities of law enforcement and investigative authorities ....... 163 Recommendation 31 - Powers of law enforcement and investigative authorities....................... 165 Recommendation 32 – Cash Couriers ................................................................................................ 168 Recommendation 33 - Statistics .......................................................................................................... 170 Recommendation 34 – Guidance and feedback ................................................................................ 171 Recommendation 35 – Sanctions ........................................................................................................ 173 Recommendation 36 – International instruments ............................................................................ 173 Recommendation 37 - Mutual Legal Assistance ............................................................................... 174 Recommendation 38 – Mutual legal assistance: freezing and confiscation .................................. 175 Recommendation 39 - Extradition .................................................................................................... 176 Recommendation 40- Other forms of international cooperation ................................................... 177 Summary of Technical Compliance– Key Deficiencies] .................................................................. 184 4 TABLE OF ACRONYMS AND ABBREVIATIONS ADLA Authorised Dealers with Limited Authority AGO Attorney General’s Office AML Anti-Money Laundering AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism ARINSA Asset Recovery Inter-Agency Network for Southern Africa BNI Bearer Negotiable Instrument BSD Banking Supervision Division BUP Act Bank Use Promotion and Suppression of Money Laundering Act BUPSML Unit Bank Use Promotion and Suppression of Money Laundering Unit (FIU of Zimbabwe) CDD Customer Due Diligence CID Criminal Investigation Department CSD Central Securities Depository CFT Combating the Financing of Terrorism CISNA Committee of Insurance, Securities and Non-banking Financial Authorities CTR Cash Transactions Reports DECIC Department of Economic Crimes and International Cooperation DNFBP Designated Non-Financial Businesses and Professions EDD Enhanced Due Diligence ESAAMLG Eastern and Southern Africa Anti-Money Laundering Group EXCON Exchange Control Division FATF Financial Action Task Force FIs Financial Institutions FIU Financial Intelligence Unit FPR Fidelity Printers and Refiners (Pvt) Limited GDP Gross Domestic Product GNU Government of Nation Unity ICRG International Cooperation Review Group Interpol International Criminal Police Organization IOs Immediate Outcomes IPEC Insurance and Pensions Commission KYC Know Your Customer LEA Law Enforcement Authorities ME Mutual Evaluation MER Mutual Evaluation Report ML Money Laundering MLA Mutual Legal Assistance ML/TF Money Laundering/Terrorist Financing MLPC Act Money Laundering and Proceeds of Crime Act (2013) MLRO Money Laundering Reporting Officer MTAs Money Transfer Agents MTOs Mobile/Money Transfer Operators Mutual Evaluation Report of Zimbabwe-September 2016 5 MOUs Memorandum of Understanding MVTS Money Value Transfer Services NGO Non-Governmental Organization NPA National Prosecuting Authority NPO Non-Profit Organisation NPS National Payment System NRA National Risk Assessment NTF National Task Force on AML/CFT Palermo Convention United Nations Convention against Transnational Organised Crime PEPs Politically Exposed Persons PF Proliferation Financing PVOs Private Voluntary Organizations RBA Risk Based Approach RBZ Reserve Bank of Zimbabwe REAC Real Estate Agents Council Reg. Regulation RTGS Real Time Gross Settlement SADC Southern Africa Development Community SARPCCO Southern African Regional Police Chiefs Cooperation Organization SECZ Securities and Exchange Commission of Zimbabwe SFT Convention UN Convention on Suppression of Financing of Terrorism SFS Serious Fraud Squad of the CID SI Suppression of Foreign and International Terrorism Statutory Instrument 76 of 2014 SR Special Recommendation SRB Self-Regulatory Body STR Suspicious Transaction Report SWIFT Society for Worldwide Interbank Financial Telecommunication TF Terrorist Financing UN United Nations Merida Convention/ UNCAC United Nations Convention against Corruption UNODC United Nations Office on Drugs and Crime UNSCRs United Nations Security Council Resolutiions Vienna Convention United Nations Convention against Illicit Traffic in Narcotic Drugs & Psychotropic Substances ZACC Zimbabwe Anti-Corruption Commission ZIMRA Zimbabwe Revenue Authority 6 EXECUTIVE SUMMARY 1. This report provides a summary of the anti-money laundering and combating the financing of terrorism and proliferation (AML/CFT) measures in place in the Republic of Zimbabwe (Zimbabwe) as at the date of the on-site visit [13-26 June 2015]. It analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Zimbabwe’s AML/CFT system, and provides recommendations on how the system could be strengthened. A. Key Findings  Zimbabwe has a relatively new AML/CFT regime following the recent comprehensive review of its legal and institutional framework. Implementation of the new measures is emerging.  Zimbabwe has assessed and identified ML/TF risks in the NRA report which was released a few weeks before the on-site visit, and therefore too soon to impact on understanding of risks. Generally, the understanding of the risks is generic and fragmented. While the FIs particularly large banks and FIs with affiliation to international financial groups have a better understanding and modest mitigation controls, the other FIs and DNFBPs showed little or no understanding of ML/TF risks.  Zimbabwean laws do not require FIs and DNFBPs nor the companies registry to establish and verify the identity of a beneficial owner except in circumstances where a customer carries out a transaction classified as prescribed transaction. The FIs and, to a limited extent, the DNFBPs apply general basic CDD requirements but have limited understanding of the beneficial ownership requirements. In general, some FIs and the rest of the DNFBPs are yet to appreciate the concept of verification of the identity of a customer using independent, reliable sources of information.  Overall, Zimbabwe has a cross-cutting issue of low resources capacity, which has negatively affected the implementation of the AML/CFT measures by competent authorities.  Competent authorities have demonstrated a good national cooperation and coordination in the preparation of the NRA and the AML/CFT Strategy. There is however limited information on practical implementation of the coordination and cooperation measures against ML.  The quality and use of financial intelligence is less developed largely due to expertise and resources constraints to conduct, (i) proper analysis of reports by the BUPSML Unit and, (ii) parallel financial investigations to identify potential ML/TF cases by the Police and other LEAs.  There are no feedback mechanisms from the BUPSML Unit to reporting institutions on the reports filed, on the one hand, and on the Police and other LEAs’ use of financial intelligence or other relevant information from the BUPSML Unit to initiate or support ML/TF cases, on the other hand.  There is little evidence on the use of financial intelligence from the BUPSML Unit to carry out ML investigations and prosecution.  Zimbabwe has not yet prioritised application of seizure and confiscation measures on property involving illegal proceeds as policy at national level. As a result, there is Mutual Evaluation Report of Zimbabwe-September 2016 7 insignificant cases of seizure and confiscation of property related to ML and TF.  Zimbabwe regards TF as low risk and has demonstrated a good understanding of TF risks in the country.  The authorities demonstrated a good national cooperation and coordination when they investigated a suspected financing of terrorism case in which financial intelligence was prioritised to identify the movements of funds involved and successfully complete the investigation.  The legal and regulatory framework for registration and licensing as well as monitoring of the NPO sector is less developed, owing to a number of deficiencies and resources constraints at the NPO regulator. There has been no outreach to the NPO sector and the regulator has not yet identified the NPOs which pose high TF risk with a view to apply proportionate monitoring controls. Despite this, the national security agencies and specialised terrorism units have demonstrated a good understanding of the vulnerabilities facing the sector and with the cooperation of the NPO regulator have put in place mitigating controls to monitor the NPOs suspected of terrorism -related activities  Zimbabwe has a sound legal and regulatory framework to implement targeted financial sanctions in respect of UNSCRs 1267 and 1373. FIs have a good understanding of the requirements and , as such, have put in place adequate procedures and processes to apply the lists issued by the BUPSML Unit on the customers and transactions. The DNFBP sector showed very little awareness of the UNSCRs requirements.  Zimbabwe has no specif ic legal or regulatory measures to implement targeted financial sanctions in respect of proliferation financing .  Supervisors are in the process of developing a risk -based approach supervision framework following the recent release of a NRA findings. Generally, AML/CFT supervision of FIs and DNFBPs in Zimbabwe is less developed. Only the BUPSML Unit has carried out supervision of banks and recently started carrying out joint inspections with the non -bank supervisors , as they develop their own capacity .. There has been no supervision of DNFBPs as the focus of the authorities was on FIs. No sanctions have been issued by the supervisors for non - compliance with AML/CFT requirements.  There is no adequate legal and regulatory framework to obtain and maintain beneficial ownership information on legal persons and arrangements . No comprehensive and sufficient risk assessment of ML/TF risks has been conducted on companies. The Registrar has no supervisory capacity including ensuring that the information it obtains and keeps, is accurate and up-to-date.  Zimbabwe has a sound framework for provision of MLA and other forms of international cooperation. However, these measures have been applied on predicate offences only and not on ML and TF cases. B. Risks and General Situation 2. Since the last Mutual Evaluation in 2007, Zimbabwe underwent a comprehensive review of its AML/CFT regime. This exercise led to a number of new laws and amendments to the 8 existing legislations to strengthen the regime. Before this process, the primary legislations underpinning the AML/CFT regime were; Criminal Law (Codification and Reform) Act, 2006, Serious Offences Act, 2001 and the Bank Use Promotion and Suppression of Money Laundering Act, 2002. In 2013, Zimbabwe passed the Money Laundering and Proceeds of Crime Act (MLPC Act) which is a composite legislation criminalising money laundering (ML) and terrorist financing (TF). The Act also provides for provisional and confiscation measures, preventative measures and supervision responsibilities, and sanctions for failure to comply with obligations and commission of ML and TF offences. 3. Although Zimbabwe has strengthened its AML/CFT legal framework, the country has low institutional capacity to implement the new measures. The majority of the Financial Institutions (FIs), Designated Non-Financial Businesses and Professions (DNFBPs) and the Competent Authorities are still in the early stages of developing and implementing their policies, procedures and processes to take into account the new framework. 4. Zimbabwe has no measures in place to implement proliferation financing requirements. 5. Zimbabwe completed a National Risk Assessment (NRA) in July 2015, and has identified five predicate offences generating the most proceeds, as follows: smuggling, illegal dealings in precious stones, corruption, fraud and tax crimes including externalisation of currency (in that order). The NRA showed that 16 predicate crimes contributed about USD 1.8 billion in 2013. This was estimated at 13 percent of Gross Domestic Product (GDP) in 2013. There were some ML cases investigated and prosecuted arising from some of the predicate offences. 6. The general ML risk situation in Zimbabwe changed during the period of hyperinflation which resulted in structural changes to the economy, as follows: 1  Zimbabwe introduced a multi-currency system in 2009 in which nine currencies became legal tender in place of the Zimbabwean Dollar (ZWD) which had collapsed . Botswana Pula, the South African Rand (ZAR) and the United States of America Dollar (USD) are widely used . The USD is the settlement currency for international transactions and central securities depository systems. F ollowing the introduction of the multi - currency system, the authorities identified increase in criminal activities with organised cross - border characteristics mainly to conversion of foreign currencies , in particular , transactions involving the ZAR and the USD. 1 The nine currencies are Australian Dollar, Botswana Pula, British Pound Sterling, Chinese Yen/Renmimbi, EURO, Indian Rupee, Japanese Yen and South African Rand. Mutual Evaluation Report of Zimbabwe-September 2016 9