Externalisation of Funds In Zimbabwe

1980 – 1990 Era

After independence, between the period 1980 and 1990, Zimbabwe sustained policies aimed at suppressing imports to assist in the maintenance of external Balance of Payments support and meeting of debt service obligations. Rigid and extensive foreign exchange controls were administered through the Foreign Exchange Allocation and Import Licencing systems. The Cabinet Committee on Financial and Economic Affairs determined global foreign exchange allocation whilst an Inter-Ministerial Committee decided on the sectoral foreign currency allocation.

In 1990, the IMF/World Bank sponsored Economic Structural Adjustment Programme (ESAP) was introduced leading to the liberalization of the trade and exchange system. The major controls during this period were:

• The imposition of a total embargo on dividend and income remittances for a two year period.

• The introduction of the 4, 6, 12 and 20-year government external bonds.

• The introduction of the Open General Import Licence (OGIL) and No Currency Involved Import Licence where the Ministry of Industry issued import licences once Exchange Control had approved the payment for the imports.

• The introduction of the Export Revolving Fund

1991 – 1995 Era

Policy shifted towards the introduction of a fully liberalized trade and exchange system. This led to the free floating of the exchange rate, the deregulation of the financial sector and the introduction of Foreign Exchange Bureaux de Change in mid-1994. The Current Account was fully liberalized in 1994 with transactions conducted in terms of the Instructions to Authorized Dealers which borrowed most of its provisions from the ‘Green Book.’

1996 – 2003 Era

The Zimbabwe Programme for Economic and Social Transformation (ZIMPREST) was implemented for the period 1996 – 2000. Exchange controls were also further relaxed, a move which resulted in empowering Authorised Dealers to authorize most of the current account transactions in 1996.

In 1997 the country started experiencing critical foreign currency shortages following the ‘crush’ of Zimbabwe dollar on 14 November 1997. The Reserve Bank withdrew more of the Authorized Dealers’ delegated functions. All foreign exchange applications were centrally processed and approved by the Reserve Bank. The situation was still worsened with the withdrawal of IMFs funding in 1999 that culminated in further reviews of some of the Exchange Control policies. With the continued and persistent shortages and externalization of foreign currency and a mushrooming parallel market, for foreign currency, there was a need to further review the existing foreign currency policy. This led to the introduction of the current batch system through Directive RD 346 of 15 November 2002. The introduction of this system meant that Authorised Dealers were completely stripped of their powers to approve foreign currency payments. The Exchange Control solely dealt with all foreign currency payments, leaving the Authorised Dealers only with powers to vet applications submitted for approval by the Exchange Control.

2004 – 2008 Era

Foreign currency shortages remained a real challenge to the economy. To address the challenges, the Reserve Bank introduced a Managed Foreign Exchange Auction System on 12 January 2004. Foreign currency users submitted their bids to the Auction Floor for allocation of foreign exchange through their Authorized Dealers . Later, the Foreign Currency Auction system was replaced by the Tradable Foreign Currency Balances System (TFCBS) on 21 October 2005. Under TFCBS, a dual exchange rate system prevailed with market transactions being conducted at the inter-bank market exchange rate and critical Government payments being conducted at the official exchange rate. The dual exchange rate system was abolished in April 2006 to consolidate and support the growth of the export sector. That resulted in all transactions being conducted at the prevailing inter-bank exchange rate.

Exchange Control (Foreign Exchange Licenced Shops) Order, S.I. 131/08 was promulgated in 2008 in response to excessive shortages of basic foodstuffs and raw materials which precipitated an increase in the volume of imports of finished products from the region and the Far East by both the formal and informal sectors. The Reserve Bank realized that the country could immensely benefit by tapping into the foreign currency resources which were being used to import various goods from across the borders. Some retail outlets were thus designated to adopt dual pricing to enable Retailers to sustain business and replenish their stocks without disruption of supplies to the market.

Post 2009

In 2009, the Exchange Controls were liberalized in light of multi-currencing regime after the formation of an inclusive Government of National Unity (GNU). Current Account transactions were liberalized to facilitate the free movement of goods and to create confidence in the economy. All applications for foreign currency payments were left to the Authorised Dealers. Surrender requirements and the exports approvals by Exchange Control were removed, and only left were the instruments which were necessary for collection of foreign trade statistics. Liberalisation was only extended to Current Account transactions. Capital account transactions remained restricted.

Externalisation cases

The law says if one earns any money while resident in Zimbabwe, that money must be brought into the country.Zimbabwe's economic history is littered with cases of individuals who were accused of externalisation suffice to say most of the accused persons arrested on charges of breaching the Exchange Control Act were acquited. Some of the prominent figures who had a brush with the law include:

• DR Christopher Kuruneri who served as the country's Minister of Finance 2003-2007.
• Mr Nicholas Vingirai founder of Inter-Market Holdings later changed to ZB holdings.
• DR Mthuli Ncube former chief economist and Vice President of the African Development Bank.
• David Butau former Mbire Member of Parliament.
• Julius Makoni founder of National Merchant Bank.(NMB)
• Otto Chekecheke of NMB
• James Mushore of NMB
• Francis Zimuto of NMB
• Gilbert Muponda of ENG

Christopher Kuruneri

The then Finance Minister Christopher Kuruneri became the first person under former President Robert Mugabe’s cabinet to face externalisation charges when he was arrested on Saturday, 24 April 2004, for externalising funds. He was reported to have externalised US$1.082 million, 34 471 British pounds and 30 000 Euros.^[1]

The State's case against Kuruneri

Kuruneri faced four charges that related to the violation of the provisions of the Exchange Control Act, Chapter 22:05. The State alleged that during the period extending from March 2002 to 2004, Kuruneri acquired foreign currency amounting to US$582 611.99, British Pounds 34 371.00 and Euro 30 000.00 from unauthorized dealers in Zimbabwe. The applicant thereafter exported the funds to South Africa where he gave it to Christopher Heyman, the Director of Venture Projects and Associates, a company he contracted to manage his businesses in South Africa, including the reconstruction of one of his properties. Part of the money, which was illegally exported to South Africa was used to purchase the following properties: a Mercedes Benz motor vehicle valued at R547 734.00 which remained in South Africa, three residential properties, one, 38 Sunset Avenue, Llandudno, Cape Town, valued at R2.7 million and the other two, comprising a house and a flat, valued at R2.5 million each. It is further alleged that on 6 March 2002, Kuruneri unlawfully caused a Zimbabwean bank, the Jewel Bank/CBZ Holdings, to transfer R5.2 million to CB Niland and Partners, who were his a lawyers in South Africa as payment for the purchase of a property, number 17 Apostle Road, Llandudno, Cape Town. All the immovable properties were registered in the name of a company known as Choice Decisions 113 PTY Limited, in which Kuruneri is the sole director.

Kuruneri's defense

Kuruneri argued that what he did was above the law because he earned the money he used to buy the properties from consultancy work for Mobile Systems International and Felipe Solano. The law however, says if one earns any money while resident in Zimbabwe, that money must be brought into the country.

The Trial

The High Court rejected the defence's request to have all the externalisation charges against former Finance and Economic Development Minister Chris Kuruneri quashed.

Justice Susan Mavangira, who heard the case with assessors Mr Patrick Musengezi and Mr Handscall Mashanda, also rejected the technical exception by the defence that the charges against Kuruneri were defective.

Prolonged detention

Kuruneri spent more than a year in detention since his arrest on charges of externalising foreign currency. Legal experts said Kuruneri had been sacrificed for political purposes.

“He is being sacrificed for political expediency so that Zanu PF is seen to be dealing with corruption,” said constitutional law expert, Lovemore Madhuku.

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Madhuku said the delay in bringing Kuruneri to trial was an infringement of his constitutional right.^[2]

Acquital

The High Court threw out all seven charges against Kuruneri on 27 July 2017.Justice Susan Mavangira said the state had failed to prove a prima facie case.

Nicholas Vingirai

Vingirai had built an impressive empire in the financial sector, He was arrested on 11 charges of theft and 2 counts of externalization involving US$300 000, R1 500 000 and Z$5 216 727.

The State's case against Vingirai

Vingirai was accused of using depositors’ funds for his own benefit or for the benefit of companies in which he had interests. Regional magistrate Mr Hosea Mujaya granted an application for refusal of further remand.The state also alleged that Vingirai exported foreign currency to the tune of Us$300 000 and R1,5 million between April and September 2003. It was also alleged that in August 2003 Vingirai issued a cheque valued Z$ 570 million which was drawn from an Inter-Market Bank and paid to First Bank Corporation for the purchase of US$ 100 000.The money was allegedly externalized to CitiBank London through Inter-Market Corporation in Zambia without RBZ clearance. In another transaction US$ 100 000 was transferred into his account whilst a further US$, 100 000 was moved to his UK account.

The Trial

The State sought to postpone the trial arguing that the documents whose authenticity was being challenged by the defence will be available on Friday. The defence did not want the State to produce photocopied documents insisting to see the originals.

Prosecutor Mr Michael Reza led evidence from the investigating officer Detective Inspector Charles Chirove who said the documents would be brought before the courts in the near future.

Through his lawyer, Advocate Isiah Mureriwa, Vingirai argued that the evidence to be used in his case was not in the hands of the police and the documents’ authenticity was under scrutiny.

Mureriwa said his client’s right to a fair trial within a reasonable time was being infringed upon and urged the court not to be used and abused by the State. Mr Mujaya concurred with the defence saying it was evident that the prosecution needed more time to prepare hence it should proceed by way of summons when it is ready.

Fleeing

Mr Vingirayi fled Zimbabwe in 2003.

Rearrest

He was arrested in 2011 after returning back to Zimbabwe.

Acquital

He was acquitted on 2 July 2012 after the state failed to produce original documents central to his trial.

Mr David Butau

Mr Butau a former member of parliament for Mbire was accused of externalising 350 000 British pounds.He fled the country in 2007 when police had summoned him for questioning. He returned and was acquited in 2009.

James Makamba

Makamba, who is a former ZANU-PF Central Committee member and Harare mayoral aspirant, has shares in Telecel Zimbabwe and is the chairman of the wireless company was arrested on charges of externalisation.

Arrest

Makamba was arrested on February 9 2004 ,on allegations of illegally dealing in hard currency.

Trial

On 14 February 2004 Makamba appeared before a magistrate on allegations of contravening section 5 of the Exchange Control Act [Chapter 22:05], as read with ss 4(1)(a)(i) and 11(1)(a) of the Exchange Control Regulations, SI 109 of 1996 ("the Regulations"). It was alleged that on eleven occasions he sold foreign currency to Telecel Zimbabwe. In his capacity as director of Telecel Zimbabwe, he is alleged to have issued cheques for payment of foreign currency purchased from persons who were not registered, dealers. Neither Makmba nor Telecel are registered foreign currency dealers. Makamba is also alleged to have opened a foreign currency account in Sandton, Johannesburg, South Africa without the requisite exchange control authority and to have illegally exported maize to South Africa and caused the proceeds of the sale to be banked in a Telecel Zimbabwe Limited foreign currency account in Luxembourg.

Prolonged detention

Makamba staid in remand prison for a very long time under a presidential decree which allowed the state to hold a suspect for up to a month without bail.

Fleeing

He skipped the country in 2005 after being arrested for violating the Exchange Control Act as the State prosecuted him on charges of allegedly externalising £3,7 million, US$2,1 million and R15 million.

Return from exile

Makamba returned to Zimbabwe in 2017 after the ouster of Robert Mugabe from the presidency having spent 17 years in exile.After his return, his externalisation case went silent.

2018

In 2018 the President Emmerson Mnangagwa released a list of companies who externalised funds. Here is the list, Read More

References