Malawi embassies used to launder K600 million -RBM Audit report

BY PIJ REPORTER

Malawi’s nineteen foreign missions were being used as conduits to launder public money which a forensic audit that was commissioned by Reserve Bank of Malawi (RBM) reveals amounts to over K600 million (US$734,400).

According to the report, the syphoned millions of taxpayers’ money was being shared among politicians during the ruling of the ousted Democratic Progressive Party (DPP) of former President Peter Mutharika.

Foreign Affairs Minister Eisenhower Mkaka of the new Tonse Alliance administration, that disposed DPP from Government, said he could not comment on the matter considering the fact that the money did not vanish under his watch.

“Let me assure you that this will never happen again,” said Mkaka.

With the new staff that the new Government has deployed to various embassies, Mkaka said mismanagement funds will be out of question as the officials are going to be responsible.

Reserve Bank of Malawi spokesperson Ralph Tseka also said he was not in the position to divulge more on how the ‘fraud’ happened since the matter is now in court.

Center for Social Accountability and Transparency (CSAT) executive director Willy Kambwandira has asked police to arrest everyone involved in the scam.

He described the revelations as shocking and disturbing news considering that this money could have been used to buy essential drugs in Malawi’s hospitals.

“We are happy that findings of the forensic audit report are very comprehensive; they have actually provided names of people involved in the plunder. It is, therefore, our expectation that the law will take its course and justice will be served to Malawians,” he said.

“Otherwise, we are greatly concerned with government inaction on such audit reports”, added Kambwandira.

The scam allegedly involved top management officials of Malawi’s central bank.

In August this year, the State asked Lilongwe Chief Resident Magistrate court to grant it 45 days to conclude investigations and make disclosures in the case where former Reserve Bank of Malawi (RBM) Governor Dalitso Kabambe and three others are accused of abuse of office, neglect of office and money laundering.

Director of Public Prosecutions Steven Kayuni told the court that the investigations involve a team of about 20 investigators from Fiscal Police, Financial Intelligence Authority, and the Anti-Corruption Bureau, who need about 30 days to conclude their investigations.

Kayuni added that, after the investigations, the State would need another 14 days to make disclosures.

“The Covid pandemic has affected progress of the investigations. Some of the witnesses were in isolation, some of them are not available now and they will be meeting the investigators later.”

“Further to that,” explained Kayuni. “There is also an aspect of international cooperation that needs to be pursued with the United Arab Emirates, Mauritius, and Egypt.

Kayuni said, upon the RBM Forensic Audit Report coming out, there were indicators as to who the suspects could be and that, using powers that Malawi Police Service has, its agents had to effect an arrest.

“Further to that, for other processes to follow, in terms of investigations to make the material available, they needed to effect an arrest. Further to that, on the ambit of processing corporation, there is a need for details of the suspects, the warrants of arrest for those things to be transmitted to the other jurisdiction for them to continue with the investigations on that side,” Kayuni said

Among other charges, Kabambe, former RBM deputy governor for operations Henry Mathanga, former director of financial markets operations Roderick Whiyo, and RBM Senior Finance and Market Operations Dealer Leah Donga, are accused of abusing authority by paying K4.3 billion without the approval of the central bank’s board to FDH Bank plc.

The four are also accused of abusing their authority by doing an arbitrary act, when they allegedly provided credit facilities amounting to K3,131,997,569.46 to Mulli Brothers Limited, Rock-Ba-Rock, Web Commercials, and F.F Trading.

According to the charge sheet of the case, the four accused also allegedly, knowingly acquired the sum of K8.3 billion with the knowledge that the sum represented directly or indirectly the proceeds of a predictable offence of abuse of public office.

Firms sue over the Audit Report

At least two entities that the forensic audit report prominently fingered for wrongdoing have separately sued the central bank, long before the matters in court have concluded.

Mulli Brothers Limited (MBL) is demanding K2.1 billion from consulting firm Deloitte & Touche Services Limited that did the report for defamation.

The forensic audit report released in July this year detailed how RBM officials allegedly bent their own rules to facilitate local and foreign payments, some of which the auditors deemed as fictitious.

Covering the period between January 1 2019 and June 30 June 2020, the audit implicated some government ministries, departments, and agencies as well as private companies.

In the report, Mulli Brothers Limited (MBL) was among those named to have benefitted from the financial improprieties at the Central Bank.

Among others, the report claimed MBL was overpaid through the Fertiliser Inputs Subsidy Programme (Fisp).

In their summons, MBL through its lawyers, Ritz Attorney at Law, queries Deloitte for stating that the firm and Jean Mathanga, wife to former RBM deputy governor, were benefitting from hefty loans from the Central Bank for their businesses.

According to the court document, in the audit report, Deloitte & Touche said it was investigating an “allegation that RBM was financing dubious payments for DPP business owners that are being used as conduits for siphoning money from government.”

Reads the court document:

“The Defendant proceeded to state that: ‘…The Mulli Brothers and Jean Mathanga (the wife to RBM Executive Director) were benefiting from hefty loans from RBM for their businesses. The Mulli’s and Mathanga’s were paid money four times for the Farm Input Subsidy Program (FISP) and payments were made before the contracts were awarded to other suppliers…”

Deloitte & Touche Services Limited is being represented by Messrs Sacranie, Gow & Company, according to a notice of appointment of legal practitioners from Sacranie, Gow & Company dated September 2, 2021.

In its amended summons filed on August 30, 2021, at the High Court, MBL has therefore demanded a total of K2.1 billion in Civil Case Number 328 of 2021.

Reads the summons: “The claimant seeks from the court an order and/or a declaration that the Forensic Audit Report by the Defendant in as far as it relates to allegations concerning the claimant breached International Standards of Auditing and is not credible.”

MBL has demanded K100 million for damages for false reporting and/or false representation and malicious falsehood.

It has also demanded another K100 million for general and aggravated damages for what it calls negligence, negligent misstatements, representations, and misfeasance.

The company has further asked for another K100 million for damages for professional negligence and also K200 million for defamation libel due to loss of business reputation and standing.

In addition, the company has demanded another K100 million for malice and/or bad faith and another K1.5 billion for loss of business and business value occasioned by the report.

The court has asked Deloitte & Touche to pay the costs or challenge the summons within 28 days.

“If you do not intend to contest the proceedings, you must within 14 days after service of this summons on you inclusive of the day of service return the accompanying response stating therein that you do not intend to contest the proceedings but desire a stay of enforcement of judgment, if any,” reads the summons dated September 2, 2021.

The summons says if Deloitte & Touche fails to pay or file a defence or return the response within the stated time, the court may proceed to give judgment against it.

There was no immediate comment from Deloitte.

One of Ritz lawyers, John Kalampa, said the matter has just commenced and Deloitte & Touche is still within time to file its defence.

“Our client’s issue of claim is that it observed several irregularities and falsities in the Forensic Audit Report that have impacted on its business and goodwill, among others.

“Our client’s assertion is that no interviews were at any point conducted and is of the strong view that the report falls below applicable standards. Our client is of further view that there was lack of appreciation of salient issues on how Letters of Credit under the facility worked,” he said.

FDH Sues too

FDH Financial Holdings Limited and its subsidiary FDH Bank plc have also sued the audit firm, seeking about K5 billion as compensation for alleged breach of contract in relation to the forensic audit at Reserve Bank of Malawi (RBM).

In a joint claim filed at the High Court of Malawi Commercial Division in Blantyre as case number 346 of 2021 on August 30, 2021, FDH Financial Holdings and FDH Bank plc claim that Deloitte was not supposed to commit to the RBM audit because it was the existing external auditor.

“The defendant [Deloitte] knew or ought to have known that in the conduct of the claimant’s [FDH] banking business, including the trading in securities and in foreign currency dealings, the claimant would have dealings with RBM in the period contracted for the forensic audit report…,” submits FDH.

FDH Financial Holdings Limited and FDH Bank plc further submit that during the period under review covering 2019 and 2020, Deloitte had also audited the group. The claim also says Deloitte did not seek FDH Group’s consent to carry out the RBM audit.

The court documents read: “The defendant [Deloitte] accepted the said instructions without notifying the claimant and without seeking or obtaining the consent of the claimant as its existing client at the time.

“The defendant accepted the said instruction, not caring whether the confidential data of the claimant was at risk or not.”

Further, the financial services group is also pursuing the “breach of general duty of care” which arises from one party failing to do something which may result in another suffering a loss.

The claimants argue that Deloitte did not consult them to verify facts before publishing the audit report, saying: “The defendant recklessly described the claimants’ due income in foreign currency dealings of the sum of K6 529 500 000 as constituting compensation.”

FDH says the forensic audit report has made it suffer loss of business and damage to local and international business reputation, among others.

“The particular damages are cancellation of $17.5 million [about K14.3 billion] term facility between the second claimant [FDH Bank plc] and its foreign cooperating partners,” says FDH Group.

“Loss of the sum of K5 112 517 133 being the equivalent of additional expense to be suffered by the second claimant pursuant to foregoing foreign currency financing facility.”

FDH said it was demanding over K5 billion “as damages arising out of the breaches”, interest on that amount, and “general damages to be assessed”.

Lawyer Patrick Mpaka, who is representing FDH Bank plc and its parent company FDH Financial Holdings Limited, confirmed filing the claim, saying they were waiting for a response from Deloitte. The respondents have 28 days to file defence.

In a separate interview, its legal representatives Sacranie Gow and Company said it will defend the claims.

Sacranie Gow and Company managing partner Shabir Latif said: “We have already indicated to FDH legal practitioners that we intend to defend the matter. We are in the process of filing our defence.”

This is the second lawsuit Deloitte is facing following the audit report. The first was filed by Mulli Brothers Limited which is suing for defamation.

In one case, the report queried RBM’s disbursement of $769 million (about K615 billion) for market interventions which the auditors said was disproportionately channelled through FDH Bank, inconsistent with its size.

The report also noted suspicious payment of K4.1 billion to the Pensions and Gratuity Account without an approved funding instruction from government. Other findings surrounded RBM’s market interventions between December 2018 and December 2020, with auditors querying a treasury note programme with Afrexim Bank in 2018 and 2019.