25 Years on: Changes and Constants
29 March 2022
23 March 2022
The Sentry: Legal Tender? The Role of Sakunda and the Reserve Bank of Zimbabwe in Command Agriculture
Possibly unlawful payments from Zimbabwe’s central bank to presidential advisor Kudakwashe Tagwirei’s companies formed up to one-third of the $280 million his firms received while running the Command Agriculture program, according to new analysis by The Sentry.
From 2016 to 2019, Tagwirei’s firm Sakunda Holdings ran Zimbabwe’s Command Agriculture program, which was intended to boost agricultural production through the provision of inputs such as seed and fertilizer to commercial farmers. Sakunda—an oil trading company—was appointed to run the billion-dollar project without an open tendering process.
The Sentry’s investigation found that, over the course of the three-year program, Sakunda received $1.28 billion total—$230 million in hard currency and over $1 billion in Treasury Bills—while providing inputs worth $1 billion: an apparent surplus of $280 million.
One of the Treasury Bills was improperly redeemed at a favorable exchange rate by the Reserve Bank of Zimbabwe (RBZ) after a new law had reduced the US dollar value of such assets. While others saw the US dollar value of their Treasury Bills fall, the RBZ protected Tagwirei’s asset from this reduction in value when it was cashed in: the central bank sent more Zimbabwean dollars to his firms than it was obliged to by the new law. This decision was worth—in US dollars—at least $50 million, and perhaps up to $100 million, for the oil tycoon’s companies. The International Monetary Fund reportedly blamed the Reserve Bank’s treatment of this Treasury Bill for bloating the money supply and contributing to inflation and the rapid decline in the value of Zimbabwe’s new currency from mid-2019.1
Sakunda, which denies any wrong-doing, testified in Zimbabwe’s Parliament that it received the favorable rate so that it could repay foreign suppliers—particularly of chemicals—in hard currency.2 However, it appears that the Treasury Bill was given a preferential exchange rate partly to allow one of Tagwirei’s firms to pay the government for some gold mines and a Zimbabwean military-controlled company for its share of a platinum mining joint venture with a Russian conglomerate. In effect, the publicly owned RBZ was printing money for private companies to buy publicly owned assets.
Command Agriculture was the product of a behind-closed-doors culture: the procurement process for this billion dollar program, the preferential treatment of the Treasury Bill, and the selection of recipients of inputs were all hidden from public view. The Sentry’s recommendations therefore include procurement transparency measures that could allow Zimbabwean citizens to see how their money is spent.
02 March 2022
Transnational kleptocracy is a growing threat to democracy with urgent consequences for national security, human rights, and human development. Kleptocracy combines 19th-century autocracy with 21st-century finance, which empowers dictators to enrich themselves and their cronies, hide the proceeds offshore, and use that wealth to corrode both foreign and domestic institutions. While authoritarian leaders divert public resources to their own pockets and park them overseas, democracies have largely focused on their internal problems rather than acting as a united front to address this peril effectively.
Kleptocratic forces exploit this disunity to cement their repressive rule at home and advance their own, anti-democratic agendas overseas. Year after year, Freedom House’s annual “Freedom in the World” rankings show that the countries that are deemed “least” free in their ranking are often those that have heavily entrenched kleptocratic networks that have taken over as the system of governance. Traditional forms of accountability are curtailed, coopted, or eliminated as kleptocratic regimes seek to prevent their theft from being exposed by journalists and their governance from being monitored by civil society organizations.
Democracies may believe that their institutions are strong enough to resist kleptocratic influence, but the evidence warns otherwise. Russia under President Vladimir Putin, for example, has used massive wealth stolen from its people to coopt foreign leaders and businesses, spread large-scale and corrosive disinformation campaigns, and interfere in democratic elections. The focus on the strength of democratic institutions misses a larger point: as more kleptocratic wealth infiltrates democracies, it corrupts individuals and members of government, which will eventually degrade independent institutions.
Many democracies appear to be waking up to the threat posed by transnational kleptocracy and enacting policies designed to combat it. The Biden administration in the U.S. has made tackling corruption a top priority, and the U.K. and EU have signaled intentions to do the same. But because kleptocracy is a transnational, networked, and entrenched form of corruption, individual or atomized responses are insufficient. Democracies must be unified and networked in their fight against it. Transnational kleptocracy will always identify weaknesses in the global network of regulation and squeeze through them, meaning the whole network must be strengthened if it is to resist infiltration. Otherwise, the money would just move to the country that remains open to it, and the problem would continue.
To fight kleptocracy effectively, we must act together. Democracies should focus on their shared fundamental values—political and personal freedom, free markets, free speech, independent judicial systems, and freedom of expression—to develop a unified response to this top order challenge, much as they did during the fight against communism during the Cold War. That sense of democratic solidarity, where all major political parties understood and recognized the threats communism posed to democratic values, should be repurposed and reinvigorated to fight kleptocracy.
As Oliver Bullough warns in this paper, the very future of democracy is at stake.
04 February 2022
Today, the U.S. Department of the Treasury published a study on the facilitation of money laundering and the financing of terrorism through the trade in works of high-value art. This study examined art market participants and sectors of the high-value art market that may present money laundering and terrorist financing risks to the U.S. financial system, and identified efforts that government agencies, regulators, and market participants could undertake to further mitigate the laundering of illicit proceeds through the high-value art market in the United States. The study was mandated by Congress in the Anti-Money Laundering Act of 2020.
Several qualities inherent to high-value art – the way it is bought and sold and certain market participants – may make the high-value art market attractive for money laundering by criminals. These include the high dollar value of transactions, transportability of goods, a longstanding culture of privacy and use of intermediaries (e.g., shell companies and art advisors), and the increasing use of high-value art as an investment class.
“As we tackle systemic challenges like corporate transparency and other loopholes that allow criminals to abuse the US financial system, we will look at what else might be needed to address money laundering risks specific to other industries, including the art industry,” said Scott Rembrandt, Deputy Assistant Secretary for Strategic Policy in the Office of Terrorist Financing and Financial Crimes.
The study found that while there is some evidence of money laundering risk in the high-value art market, there was limited evidence of terrorist financing risk. The participants most vulnerable to money laundering in the art market are businesses that offer financial services, such as art- collateralized loans, but are not subject to comprehensive anti-money laundering/countering the financing of terrorism (AML/CFT) obligations. Asset-based lending can be used to disguise the original source of funds and provide liquidity to criminals.
Entities which have lower levels of annual sales turnover (such as small galleries), and entities that only occasionally transact high-value art (such as third-party online marketplaces, museums, other non-profits) may present lower risk, while entities which have larger annual sales turnover and regularly transact in high-value art in the ordinary course of business may present a higher risk. Further, the emerging digital art market, such as the use of non-fungible tokens (NFTs), may present new risks, depending on the structure and market incentives.
To address the identified risks, the study recommends consideration of several non-regulatory and regulatory options:
- Encouraging the creation and enhancement of private sector information-sharing programs to foster transparency among art market participants;
- updating guidance and training for law enforcement, customs enforcement, and asset recovery agencies;
- using FinCEN recordkeeping authorities to support information collection and enhanced due diligence; and
- applying AML/CFT requirements (such as suspicious activity reporting and know-your-customer procedures) to certain art market participants and/or obligating them to create and maintain AML/CFT
In considering these steps, Treasury will take into account how these measures could mitigate identified money laundering risk, the potential burden on smaller art market participants, privacy considerations, as well as progress on addressing systemic AML/CFT issues, such as the abuse of shell companies. In developing the study, Treasury conducted dozens of interviews with art market participants, such as auction houses, galleries, financial institutions, art advisors, art subject matter experts across the U.S. government, international partners that regulate or are regulating the art sector, and academic and non-governmental organizations.
26 January 2022
09 December 2021
08 December 2021
The growth of London as a centre for financial and professional services coincided with the collapse of the USSR and the rise of post-Soviet kleptocracies in the 1990s. These states and their elites have since become a major source of clients for UK-based services firms and of investors in UK assets.
In keeping with global standards, the UK has officially adopted a risk-based approach to anti-money laundering. However, failures of enforcement and implementation of the law – plus the exploitation of loopholes by professional enablers – have meant that little has been done in practice to prevent kleptocratic wealth and political agendas from entering Britain.Based on extensive research on the laundering of money and reputations by elites from the post-Soviet successor states, this paper details how the UK is ill-equipped to assess the risk of corruption from transnational kleptocracy, which has undermined the integrity of important domestic institutions and weakened the rule of law. It concludes by calling for the UK government to adopt a new approach to this problem focused on creating a hostile environment for the world’s kleptocrats.
21 October 2021
24 September 2021
The 30th edition of the Global Financial Centres Index 30, was published today by Z/Yen Group in partnership with the China Development Institute (CDI). The launch webinar for GFCI 30 linked London and Busan.
New York held onto the top position in the index and has now been in first place for three years.
London remained in second place, while Hong Kong and Singapore in third and fourth position both fell 25 points in the ratings.
Overall the average rating fell 12.9 points (2.05%). While a small change, this is the third consecutive fall in the average rating.
The fact that overall ratings continue to fall against the levels that we saw in 2019 reflects the continuing uncertainty around international trade, the impact of the covid-19 pandemic, and geopolitical and local unrest.
Asia/Pacific centres generally fell in the ratings in GFCI 30, and assessments from people based in Asia/Pacific suggest that they judge Chinese centres in particular less favourably than before. This might suggest that the economic gains in the region arising from covid-19 may be levelling off.
North American centres performed well in GFCI 30. This is likely to reflect renewed optimism about the US and Canadian economies as they move forward from the pandemic.
The relatively strong performance of New York and London suggests that the financial services sectors in these cities managed to sustain their performance despite radical changes in working practices during the last 18 months.
Kigali and Lagos join the index for the first time, recognising the growth of financial services in Africa.
The top 20 centres in GFCI 30 are shown in the table below.
New York and Shanghai retained first and second positions in the GFCI 30 FinTech ranking, with London rising two places to third place.
In the top 40 positions, Western European centres performed well, with most gaining rank position.
Professor Michael Mainelli, Executive Chairman of Z/Yen, said:
We see two patterns in the results for GFCI 30 – confidence in the recovery of the North American and Western European economies following the shock of 2020; and a levelling off following the rapid rise of Asia/Pacific centres and their economic stability in the covid-19 pandemic. Competition remains tight. Outside the top two centres, only five points on a 1,000 point scale separate the centres ranked third to eighth.
15 September 2021
On World Democracy Day, September 15, 2021, the Ghana Center for Democratic Development (CDD-Ghana) and Democracy in Africa (DIA) release two major reports about the capture of supposedly democratic political systems by private networks that work in their own interest, rather than that of the public.
Using evidence from new interviews, data collection and network mapping, a team of 10 researchers will report the extent to which political and economic decisions in African democracies are shaped by individuals or groups that are often unelected and work to subvert the formal institutions of the state to push their own interests and agendas. Together, the reports demonstrate that in many – but not all – African countries some of the most important political and economic decisions are not taken by individuals accountable to citizens, but by networks comprising insiders in the executive, political fixers, the president’s family, judges, businessmen, senior civil servants, military leaders, and international financiers, among others. In a number of cases, these networks traverse national borders, either through deep ties to international companies or through integration into transnational organized criminal networks, so that significant resources are taken out of the country.
The reports also demonstrate that the extent of democracy capture varies significantly. It is relatively lower or less pronounced in countries such as Ghana, with an experience of multiple transfers of power through competitive elections, and much higher in states such as Zimbabwe where the government has never changed hands. The shape that networks take also varies tremendously and no two shadow states are the same:
In Uganda, the shadow state is run by an axis of President Museveni’s family and the country’s “military aristocracy”, along with a select number of interlocutors in the business community.
In Benin, things look very different, as President Patrice Talon has exploited the weakness of the legal system, the judiciary and the legislature to turn one of the continent’s most vibrant democracies into a near one-party state.
In the DRC, the international military alliances around former President Joseph Kabila played a critical role in creating a shadow state that was intimately connected to transnational smuggling networks.
In Zambia, the security forces have been less relevant and instead democracy capture has been driven by the nexus between civilian politicians, government officials, and private businessmen.
In Zimbabwe, the importance of the military has grown since the early 2000s, penetrating further areas of the state and the economy, raising questions about whether President Emmerson Mnangagwa or army leaders really hold power.
Understanding how democracy is captured is critical because it helps to explain the lack of progress in many countries towards democratic consolidation, how poorly performing governments are able to remain in power, why development programmes often fail to meet the needs of ordinary citizens, and why the gap between the “haves” and “have nots” continues to grow.
Key insights and findings include:
The way that “billionaire judges” in Nigeria make fortunes by taking bribes to exonerate political leaders and criminal organizations, facilitating corruption and creating a culture of impunity that undermines both democratic accountability and the rule of law.
How security officials, bank managers, electoral officials, judges and journalists collude with members of the ruling party to prevent opposition parties from being able to effectively campaign in elections in countries such as Mozambique, Uganda and Zimbabwe, preventing a transfer of power.
The way the police and military in the DRC set up command posts near newly productive mining shaft, not to protect workers but instead to issue unofficial “taxes”, so that some mine operators have to pay 40 regular fees – only 9 of which are official levies of the national government.
How companies with connections to the ruling party and the military in Zimbabwe have used their connections to artificially create a fuel shortage that has enabled them to inflate their prices at the expense of motorists, creating major challenges for businesses and ordinary citizens.
The way that Presidents such as Uganda’s Yoweri Museveni issue tax waivers to their business allies in return for financial contributions to their election campaign “war chest”, denying the Treasury hundreds of millions of dollars in revenue, and reducing the funds available for health and education.
How the partial capture of democracy in Ghana has contributed to the emergence of a distinctive class of super privileged Ghanaians, who have become rich in part due to their privileged access to the state, including governing and opposition party politicians and their cronies in the business sector and leadership of state bureaucratic and parastatal agencies.
According to Professor H. Kwasi Prempeh, Executive Director of CDD-Ghana, “Rather than a government of the people, by the people and for the people, democracy in Africa, including the legitimacy it confers on governments, appears captured to serve interests other than the people’s, thus leaving many people increasingly questioning democracy’s relevance. The future of democracy in Africa depends on our ability to reverse this picture.”
On his part, Nic Cheeseman, Professor of Democracy at the University of Birmingham said, “the growth of shadow states – powerful networks of unelected individuals that use their access to the government to pursue their own interests at the expense of the public – represents the most significant political challenge facing African countries today, and is the root cause of the democratic backsliding that we have seen in many states over the last ten years”.
John Githongo, a noted Kenyan anti-corruption campaigner was also of the view that “these reports represent the most comprehensive and insightful analysis of the way that democracy and economic and subverted in Africa available to date. They reveal that shadow states and democracy capture are the root causes of corruption, inequality and development failure.”
The countries covered in this project include Benin, the Democratic Republic of Congo, Ghana, Kenya, Mozambique, Nigeria, Uganda, Zambia, and Zimbabwe.
13 September 2021
- once again, jurisdictions score rather badly for effective implementation across the board;
- the discrepancy between technical compliance and effective implementation is even worse in relation to prevention.
- some DNFBPs are advising and assisting criminal clients with hiding and laundering illicit funds;
- as some high-profile cases have shown, accountants are used as intermediaries to avoid scrutiny.
01 September 2021
EIA - The Italian Job: How Myanmar timber is trafficked through Italy to the rest of Europe despite EU laws
Italy has been exposed at the heart of an ongoing trade in illicit timber from Myanmar, in defiance of both EU trade regulations and sanctions imposed in response to the violent military coup earlier this year.
In this report, EIA identifies a total of 27 Italian timber traders importing teak timber products.
08 August 2021
23 July 2021
Nespresso Launches Organic Blend from The Democratic Republic of The Congo To Revive The Coffee Sector and Communities in Kivu
Nespresso launched KAHAWA ya CONGO – a smooth and fruity organic coffee made possible only through the unique brand’s Reviving Origins program, which aims to revitalize coffee production in regions impacted by adversities ranging from climate change to conflict. The first organic blend under the Reviving Origins program, KAHAWA ya CONGO, is from the Lake Kivu region, where the once-thriving coffee farming community has been devastated by decades of political and economic instability.
Since its launch in 2019, the Reviving Origins program has enabled the production of exquisite coffees from areas of Zimbabwe, Uganda, Colombia and now, the DRC, to become available as seasonal coffees for Nespresso coffee drinkers.
In 1980, coffee was the second most important export for DRC and ranked among the world’s finest but declined in the early 2000s due to years of instability that had a devastating impact on the industry. Volumes have since dropped by 10 times.
Nespresso, together with global non-profit TechnoServe, the U.S Agency for International Development (USAID) and coffee trader Virunga Coffee/Olam International, is working with 2,500 farmers in South Kivu to improve coffee quality and yield, and embed sustainable farming practices, while increasing incomes. Nespresso is also in the process of expanding the program across North Kivu to potentially include up to 1,700 organic certified farmers.
Paulo Barone, Head of Coffee Sustainability and Origins Development at Nespresso, said: “Kivu has the potential to be among the world’s great coffee regions but has faced extremely challenging conditions in recent years. Through our Reviving Origins program, we’re working closely with Congolese farmers to revitalise the sector, restore Kivu as a leading source of high-quality, exceptional Arabica coffee and rebuild sustainable livelihoods, while bringing vital social support to enhance the welfare of the communities behind our KAHAWA ya CONGO coffee.”
Paul Sabatine, Mission Director for USAID/Democratic Republic of the Congo, said: “Nespresso’s partnership with USAID to revitalize DRC’s coffee sector is critical for Congolese farmers, who now have better coffee quality, improved productivity and higher incomes. Communities have experienced stronger economic development due to the partnership, in a region where absence of sustainable livelihoods fuels conflict. We look forward to a continued collaboration with Nespresso as we jointly seek to improve farmers’ livelihoods.”
Will Warshauer, President and CEO of TechnoServe, added: “This coffee represents the incredible spirit of Congolese farmers who have overcome so much to build a better life for their families. In working with these farmers to improve their coffee crops, TechnoServe has seen how dedicated buyers like Nespresso, who pay higher prices for higher quality, can transform the livelihoods of thousands of people in this conflict-affected region. We’re looking forward to a bright future for Congolese coffee and for the hardworking farmers who produce it.”
Kivu coffee farmer, Turanyi Kabasura, said: “I see my remaining days being better than those in the past, because I am going to work, assured of receiving regular pay and a bonus each time after the coffee sale. In my whole life, no one has ever given me such a bonus. I can use that to develop other strategies, such as raising small livestock, or my wife can run a small business. I am starting to see the results of my work.”
REVIVING COFFEE AND COMMUNITIES IN KIVU
In Kivu, decades of conflict have led to many farmers fleeing their homes, and the region continues to face significant economic and healthcare challenges. Today, 58% of households in DRC lack access to clean water systems, and 15% of children do not reach their 5th birthday, with preventable and treatable diseases such as water-borne illnesses, acute respiratory infections and malaria among the leading causes.
In partnership with the Eastern Congo Initiative (ECI), Nespresso is investing CHF 1 million to support the establishment of 23 water access points across the region, in addition to one primary and five mobile health clinics, which will deliver 13,000 health consultations per year to local communities, helping in the fight against cholera, a major health issue in the country.
Abraham Leno, ECI Executive Director, said: “Eastern Congo has suffered through decades of fighting. During those years in addition to terrible loss of countless people, the economy collapsed and public institutions’ capacity to care for the people of Congo was greatly depleted. But farmers kept working their fields and tending their coffee trees, because they knew that it was their path to a brighter future for their families. That is the true spirit of Congo. Nespresso’s funding of Asili, the social enterprise powered by ECI, will help farmers secure that future – building meaningful livelihoods and bringing world-class essential services, like clean drinking water and affordable healthcare, to families. It’s transformational change like this that allows hope to flourish and communities to heal.”
Nespresso’s unique sustainable sourcing model in coffee producing countries, the Nespresso AAA Sustainable Quality™ Program, provides the foundation for its work in Reviving Origins regions and involves more than 120,000 farmers across the world. Overall, Nespresso is investing a total of CHF 10 million in the Reviving Origins program over a period of five years (2019-2023).
KAHAWA ya CONGO is available online and at Nespresso boutiques, alongside Reviving Origins coffees AMAHA awe UGANDA, TAMUKA mu ZIMBABWE and ESPERANZA de COLOMBIA – returning for 2021. The long-term objective of the Reviving Origins program is to establish these under-threat coffees as permanent blends, available all year round for consumers.
KAHAWA ya CONGO: “Hope of Congo”
The rain-rich volcanic soils along the Kivu lakeshores of Eastern Congo provide an ideal environment for growing specialty Arabica coffee. The first organic coffee in the Reviving Origins range, KAHAWA ya CONGO is a smooth, seasonal coffee with a mild, fruity note, and alluring sweet cereal and nutty aromas.
01 July 2021
A report published today by The Sentry, “Shadows and Shell Games: Uncovering an Offshore Business Empire in Zimbabwe,” reveals key details of the business practices of controversial businessman and presidential advisor Kudakwashe Tagwirei.
The Sentry’s investigation reveals that Tagwirei, who has been followed by allegations of corruption and cronyism for years, has been using complex corporate structures and seemingly preferential government treatment to build his business empire and enormous wealth. The tycoon now presides over a sprawling network of more than 40 companies spanning the oil, mining, banking, logistics, transportation, and import/export sectors. The report details how Tagwirei has effectively concealed his control over this empire through an elaborate foreign network, hiding his wealth and ownership through offshore financial structures.