The solutions to money laundering as a crime in the banking sector in Zimbabwe

APPROVAL FORM The undersigned certify that they have supervised the student TAFADZWA MURUNGU’S dissertation entitled “The solutions to money laundering as a crime in the banking sector in Zimbabwe”, submitted in partial fulfillment of the requirements of the Bachelor of Commerce in Business Management Honours Degree at Midlands State University.

……………………………………… SUPERVISOR

……………………. DATE

……………………………………… CHAIRPERSON

………………………. DATE

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

RELEASE FORM NAME OF STUDENT: DISSERTATION TITLE: MURUNGU TAFADZWA The solutions to money laundering as a crime in the banking sector in Zimbabwe. DEGREE TITLE: Bachelor of Commerce Business Management Honours Degree YEAR THIS DEGREE WAS GRANTED: 2010 Permission is hereby granted to the Midlands State University Library to produce single copies of this dissertation and to lend or sell such copies for private, scholarly or scientific research purposes only. The author reserves other publication rights and neither the dissertation nor extensive extracts from it may be printed or otherwise reproduced without the author’s written permission.

SIGNED: PERMANENT ADDRESS:

…………………………………………….. House number 7411 ZIMRE Park, Ruwa Harare Zimbabwe

DATE:

May 2010

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

DEDICATION

The Murungu family members, you have been source of inspiration. I will remember you for your sturdy support.

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

ACKNOWLEDGEMENTS

Firstly I would like to be thankful to the Almighty Lord for granting me the opportunity to pursue enjoying his grace and has blessed me to complete my dissertation.

I greatly appreciate the solid support that I got my family without whom all got could have been inaccessible. Credit also goes my honourable supervisor Mr. L Mutandwa for his guide throughout the research project up to this point and time when I am holding this document. To friends Clifford “Kato” Nonokai, Jenipher Mundopa, Ethel Phiri among others, I also pay my gratitude for your support for you were a source of inspiration that kept me going. Without wood, a fire goes out; without your support, this paper could not have been completed, I thank you all.

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

ABSTRACT

Money laundering or laundering the proceeds of serious offence means any act, scheme, arrangement, device, deception or artifice whatsoever by which the true origin of the proceeds of any serious offence is sought to be hidden or disguised. This paper is anticipated to find out the solution to combat money laundering as a crime in the banking sector in Zimbabwe as the crime is being continuously committed. In doing this research it points out that money laundering can be prevented. Also pointed out in the work are the challenges that are being faced in an attempt to curd the crime as well as the means by which the crime is being committed. Maximum effort was applied to this paper but it is subject to the limitation related to financial since it was the time when the country adopted to dollarisation. This is a theoretical result that points out to the necessity to bring awareness to the employees in the banking sector about the laws concerning money laundering as well as the people of the republic of Zimbabwe.

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

TABLE OF CONTENTS TITLE Pages

CHAPTER ONE………………………………………………..………………………………..1

1.1 Introduction……………………………………….…………….……………………………1 1.2 Background of the study…………………………..…………..………….……………..……4 1.3 Statement of the problem …………………………………………………………….………6 1.4 Statement of hypothesis………………..………….………………..………….……………..6 1.5 Objectives of the study……………………….………………………………………………6 1.6 Significance of the study…………………………………………….………………………7 1.7 Delimitations of the study……………………………………….…….……………………..8 1.8 Limitations of the study……………………………...……….……………….……………..9 1.9 Research assumptions…………………………………………….………………………….9

CHAPTER TWO: LITERATURE REVIEW …………………………….……………….…10 2.0 Introduction……………………………..………………………….………….…………….10 2.1 Defining money laundering…………………………………………………….……………10 2.2 Stages in laundering money …….……………………………..…….………….…….……..13

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2.3 Forms of money laundering……………………………………………..…………….…….13 2.3.1 Cash smuggling……………………………………………………………………..……13 2.3.2 Money laundering through banking institutions…………….…………………….…….15 2.3.3 Money laundering through insurance institutions……………………..……..…………..16 2.3.4 Money laundering through realty or lottery business……………………….……………17 2.3.5 Money laundering through underground banks……………….……………….…………18 2.3.6 International trade based money laundering…………………...………………….….…..18 2.3.7 Money laundering through shell or front company………..…………….……………….19 2.3.8 Money laundering through offshore corporation or offshore financial centre.…………..20 2.3.9 Money laundering through professionals such as lawyers and accountants…………..…21 2.3.10 Money laundering through electronic money transfer………………………..………...22 2.4 Target businesses to prevent money laundering…………………………………….……….23 2.5 Preventive measures…………………………………………………………….………..….24 2.5.1 Customer identification…………………………………………………………………..24 2.5.2 Know Tour Employee (KYE)……………………………………..……………………..25 2.5.3 Legislation..………………………………………………………………………………26 2.5.4 Quality human capital……………………………………………………………………27

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2.5.5 Reporting suspicious transactions and record keeping………………….……..………..27 2.5.6 Coping with technology…………………………………………………………………29 2.5.7 Education and training…………………………………………………………………...31 2.5.8 Good corporate governance………………………………………………………………32 2.5.9 Offering incentives to banks……………………………………………………………..33 2.5.10 Monitoring physical cross-border transportation………………………………………34 2.5.11 Imposing sanctions on FIs and fines……………………………………………………35 2.5.12 Freezing or seizure of proceeds…………………………………………………………36 2.5.13 General provisions that prohibit the ill-gotten money……………..………………........37 2.6 Challenges in preventing money laundering…………………………….…………………...38 2.6.1 Privacy……………………………………………………………………………………38 2.6.2 Failure to record names in transactions…………………………………………………..38 2.6.3 Operating environment…………………………………………………………………...39 2.6.4 Customer due diligence requirements……………………………………………………40 2.6.5 Conflicting interest………………………………………….……………………………41 2.6.6 Technological changes……………………………………………………………………42 2.6.7 Unwillingness of banks to cooperate……………………………………………………..43

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

2.6.8 Underground banks…………………………………………….………………..………..44 2.6.9 Weak governance…………………………………………………………………………44 2.7 Recommendations……………………………………………………………………………45 2.7.1 Developing countries……………..………………………………………………………45 2.8 The targets for money laundering among other things……………..……………………….4.6 2.9 Impact to the inclusive financial sector……………………………………………………...48 2.10 Failures cases………………………………………………………….……………………50 2.11 Chapter summary………………………………………………..…………………………51

CHAPTER THREE: RESEARCH METHODOLOGY………..……………………………52

3.0 Introduction……………………………………………………….….…………….………..52 3.1 Research design…………………………………………………….………………………..52 3.1.2 Descriptive research............................................................................................................53 3.1.3 Justification of the research design…………..………….………...………………...……53 3.2 Data collection techniques………………………………………….………………………..54 3.2.1 Primary data........................................................................................................................54

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3.3 Research Instruments………………………………………………......................................54 3.3.1 Personally administered questionnaire……..………………………………………….....55 3.3.3.1 Justification for personally administered questionnaires………....................................55 3.3.2 Personal interviews……………………………………………….………………………55 3.3.2.1 Justification for personal interviews…………………………….……………………..56 3.3.3 Secondary data………………………………………………………………….…………56 3.4 Research population…………………………………………………………………………57 3.4.1Research sample…………………………………………………………….……………57 3.4.2 Sample design……………………………………………………………………………58 3.4.3 Sampling unit……………………………………………………………………………58 3.5 Data presentation……………………………………………………………………………58 3.6 Data editing…………………………………………………………..………………………59 3.7 Data analysis…………………………………………………………………………………59 3.8 Tabulation………………………………………………………………..…………………..59 3.9 Chapter summary……………………………………………………………………………59

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION…60

4.0 Introduction……………………………………………………..…………………………...60 4.1 Questionnaire and interview response rate……………………..……………………………61 4.2 Data presentation analysis and interpretation ………………...……………………………..62 4.2.1 Reason for committing the crime in relation to employee motivation…………………….62 4.2.2 Employee willingness to prevent the crime in relation to corporate governance………….66 4.2.3 Educating the employees about money laundering………………………………………..69 4.2.4 Educating the public about money laundering……………………….................................70 4.2.5 Extent perceived of preventing money laundering………………………………………...71 4.2.6 Challenges in an attempt to prevent money laundering……………………………………72 4.2.7 Techniques used to launder money in Zimbabwe………………………………………….75 4.2.8 Chapter summary……………………………………………………..................................75

CHAPTER FIVE: SUMMARY CONCLUSIONS AND RECOMMENDATIONS…….…77 5.0 Introduction…………………………………………………………………………………..77 5.1 Summary……………………………………………………………………………………..77 5.2 Research conclusions…………………………………………………………….………….78

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5.3 Recommendations……………………………………………………………….…………..79 References………………………………………………………………………….……………83 Appendices………………………………………………………………………………………87

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LIST OF FIGURES Figure 4.1: The reasons for money laundering in relation to employee motivation……………..63 Figure 4.1a: Graphical presentation of analysed data in 4.1..…………...……………………….65 Figure 4.2: Willingness of employees to curb money laundering versus corporate governance..67 Figure 4.2a Graphical presentation of analysed data in 4.2…..…………………………………68 Figure 4.3: Suggested ways of educating the employees………………………………………..70 Figure 4.4: Suggested ways of educating the public……………………………………………..71 Figure 4.5 Extent perceived of prevent money laundering………………………………………72

LIST OF TABLES Table 3.1: Population and sample sizes………………………………………………………….57 Table 4.1: Questionnaire response rate…………………………………………………………..61 Table 4.2 Interview response rate………………………………………………………………..62 Table 4.3: The level of motivation in relation to reason for committing the crime……………...64 Table 4.4: Employee willingness to prevent the crime in relation to governance……………….67

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The solutions to money laundering as a crime in the banking sector in Zimbabwe

Definition of terms and list of acronyms

Money laundering – convert ill-gotten money into legitimate cash. Dirty money – money accessed through illegal businesses. Launderer – one involved in money laundering. Courier – the one who carries the cash during cash smuggling Ghost account – accounts without identifiable holders but they exist Shell Company – companies with no real operating activities Legitimate cash – lawful cash or cash accessed through legal businesses.

ZABG CJA BSA FATF FSMA POC WSBI

- Zimbabwe Allied Banking Group - Criminal Justice Act - Bank Secrecy Act - Financial Action Task Force - Financial Services and Markets Act - Proceeds Of Crime - World Savings Banks Institute

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KYC CDD GOZ ISPs ICT POCA FIU SFA FSA AML

- Know Your Customer - Customer Due Diligence - Government of Zimbabwe - Internet Service Providers - Information Communication and Technology - Proceeds Of Crime Act - Financial Intelligence Units - Securities and Futures Authority - Financial Services Authority - Anti-Money Laundering

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