Eighteen months after Cashgate hit the headlines in Malawi, only five of the 68 people arrested in connection with the scandal have been tried and convicted. About R2.1-million – less than one percent of the estimated loss to government – has been recovered.
An investigation by amaBhungane also revealed that neither the banks nor the accountant general’s department – both allegedly central to Cashgate – have instituted disciplinary action against suspects named in a forensic auditors’ report.
The government’s response has implications for foreign aid. This week the European Union ambassador in Malawi, Marchel Gerrmann, indicated that the EU ban on budget support imposed after Cashgate would remain in force until there was an “action plan” on the management of public finances.
Most of the alleged major beneficiaries identified by auditors Baker Tilly were arrested in late 2013, but their cases have not yet been heard.
They include six officials of the accountant general’s office the auditors found were mainly responsible for signing the Cashgate cheques.
A spokesperson for the national audit office, Lawrence Chinkhunda, said the officials had been “interdicted” – suspended – but would only face disciplinary proceedings after the outcome of their court cases.
“There are procedures to fire staff in the civil service should they be found to be involved in the Cashgate issues,” Chinkhunda said.
“The initial procedure was to interdict them. Should they be found guilty … they can be fired according to the laws and regulations.”
The money-laundering case against Oswald Lutepo – a former official of Joyce Banda’s party whose companies allegedly received the lion’s share of the Cashgate money – has been dropped because he is too ill to stand trial.
Lutepo was approached for comment but would not speak to amaBhungane.
In an interview last week, judiciary spokesperson Mulenga Mvula said that MK86-million (about R2.1-million) had been recovered by the government. This represents about 0.3% of the MK24-billion (R540-million) estimated by the auditors as fraudulently paid out and “at risk”.
A large slice of this – MK62-million – was voluntarily refunded by former ministry of tourism principal secretary Tressa Senzani, who was convicted of money laundering and sentenced to three years’ imprisonment in August last year.
Also serving jail sentences are businessmen Maxwell Namata and Luke Kasamba, who together repaid a total of MK24-million (R600?000), and environment department assistant accountant Victor Sithole and Malawi Congress Party official Wyson Dzinyemba Soko.
The auditors’ report suggests that between April and September 2013 a ring of government workers, private businessmen and bank officials defrauded government, either through over-invoicing or payment for goods and services that were not delivered or rendered.
The alleged looting reached fever pitch between August 30 and September 6 2013, when MK2.3-billion (R57.5-million) was withdrawn, amounting to 32% of the total Cashgate withdrawals. More than MK800-million (R2-million) was cashed on a single day, September 5.
Warning that there was a risk of similar abuses in future, the auditors made 63 recommendations.
These included prosecuting and disciplining offenders, tightening financial controls and tracing and recovering the missing money, which they said was “probably” used for electioneering before the May 2014 elections.
Attorney general Kalekeni Kaphale told amaBhungane that the government’s intention had been to recover most of the Cashgate money by seizing assets under the Forfeiture Act.
Yet, in October 2003 the high court struck down the Forfeiture Act under the Constitution for unreasonably compromising fundamental human rights.
The national audit office said the auditors’ findings were not “affirmative” until evidence was provided on how the money was used by those involved. Chinkhunda said the matter was being handled by the Anti-Corruption Bureau.
Asked what progress the police had made in investigating Cashgate, the former inspector general of the force, Paul Kanyama, also said that the Anti-Corruption Bureau was responsible for pursuing culprits.
The bureau said it was still investigating, and was unable to discuss its findings “as doing so may jeopardise the process”.
Banks at fault too
Baker Tilly turned a harsh spotlight on the banks, finding that there had been “significant control failures”, in some cases as a result of management overrides.
“The relevant regulatory authorities should investigate the role of the banks … to assess whether it would have been reasonable to expect [them] to raise concerns at the very large sums of money being deposited and then withdrawn,” it said. “If it is concluded that the banks had not acted in accordance with banking norms and related legislation, appropriate action should be taken.”
Standard Bank, which processed 52% of the Cashgate payouts, denied that there had been any breakdown in banking controls, saying it was government accounting systems that had broken down.
Standard Bank spokesperson Thoko Unyolo said that when the bank received government cheques drawn in favour of customers “they conducted all duty of care on all cheque transactions, like phoning the person [to whom the cheque is made out] the authorised signatories and confirmed cheques”.
“There is no limit to what an individual can cash … at any bank in Malawi,” Unyolo said.
She said Standard Bank had raised the awareness of staff about suspicious transactions and strengthened its relationship with the Financial Intelligence Unit and the Anti-Corruption Bureau.
There had also been discussions with the regulator about the value of cheques that can be cashed over the counter.
Passing the buck
Both the Reserve Bank of Malawi and the government’s financial intelligence unit (FIU), which analyses information from financial institutions, denied responsibility for acting against offenders.
The FIU said its mandate does not extend to following cash withdrawals, as “this is an investigative task, which is the mandate of law enforcement agencies”.
Spokesperson Masautso Ebere said the job of determining whether a bank has flouted regulations, and of meting out penalties, lies with the registrar of financial institutions.
Reserve Bank of Malawi spokesperson Mbane Ngwira said the auditors had not highlighted specific regulations the banks had violated.
“The regulations were not specified, so it was difficult for us to punish banks. There are specific regulations and each regulation has a penalty,” Ngwira said.
The director of debt and aid management in the finance ministry, Peter Simbani, said this week that one step the government had taken to address theft was to incorporate the government’s “number one account”, which is hosted by the Reserve Bank of Malawi, into the Integrated Financial Management Information System (IFMIS).
“We are addressing the systemic weaknesses. Previously account number one was not connected to IFMIS and nobody knew how much money there was in it. This led to government overpaying ministries on their budget allocations.”
Simbani said government had also signed a memorandum of understanding with the commercial banks on how government cheques would be treated. “The commercial banks cannot cash these cheques without verifying against a check list that government will provide them for every payment.”
Simbani added that a cash withdrawal limit of MK500?000 on government cheques has been set.
Gerrmann said EU budgetary support for Malawi, withdrawn in September 2013, would resume on two conditions: when an International Monetary Fund-backed economic stabilisation programme was in place, and when there was sufficient progress in strengthening national public financial management.
The latter implied a “comprehensive PFM [public finance management] action plan and demonstrated implementation of PFM reforms (including procurement)”.
The office of Malawi President Peter Mutharika said his administration “continues to lead the task of engaging the donors alongside efforts to carry out public sector reforms whose aim is to restore and sustain the trust and confidence of [aid] donors”.
He conceded the Malawi budget had been designed in the expectation that at least 10% of it would be supplied as aid, and the aid drought has meant painful sacrifices.
The African Development Bank had agreed to release MK8-billion (R200-million) as budgetary support during 2014-2015. “Indications are that both the World Bank and the European Union could release their pledged budget support during the next financial year,” Mutharika said.
Although some might consider the continued denial of budgetary aid as a failure, others would see it “as a good sign that augurs well for [us] … when, as an independent country, we are bound to be left alone …”
Mutharika noted his efforts in the Cashgate fight:
? Establishing clear performance criteria and benchmarks for regular audits of state spending;
? Setting up an efficient system for monitoring the allocation and use of resources so that irregularities were detected at an early stage;
? Strengthening the financial management system to detect corruption, and ensuring the prosecution and punishment of corrupt public officers;
? Empowering the offices of the auditor general, the public accounts committee and the Anti-Corruption Bureau; and
? Reviewing the Procurement Act to ensure that it is nonpolitical.
Malawian lawyer Jai Banda cast “serious” doubts on whether the Cashgate billions would be recovered, saying there was no evidence that it had been invested in property or banked.
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.
The Malawi budget had been designed in the expectation that at least 10% of it would be supplied as aid, and the aid drought has meant painful sacrifices