Mutual Agreement Between Zanzibar and Mainland Tanzania, Enforced by Two Laws, Has Created Loophole That Permits ‘Forex’ Leaks and Possibly Capital Flight Out of Tanzania. Under the Circumstances, it is completely legal to carry any amount of ‘forex’ or local currency out of Tanzania.
By Jaston Binala.
A LOOPHOLE exists which has permitted foreign exchange leakage and possibly capital flight out of Tanzania for years through the nation’s major airport in Dar es Salaam investigations show, forcing the government to start process to rectify the problem.
Laxity and contradictions in the country’s Anti-Money Laundering Act used on the mainland, and the Anti-Money Laundering and Proceeds of Crime Act used in Zanzibar permits unlimited transportation of bundles of hard cash in foreign exchange out of Tanzania. Under the existing circumstances, it is completely legal to carry any amount of ‘forex’ out of Tanzania any time.
The Minister of Finance Dr. Philip Mpango has told this reporter by phone the process to rectify legislative bottlenecks causing this problem have reached an advanced stage and will be announced by his Ministry after relevant government departments have approved the rectifications.
Police records ascertained by this reporter at the Julius Nyerere International Airport during a Thomson Reuters Foundation illicit finance reporting project* reveal a continuous outward flow of foreign currency which has taken place for years, such that over $500,000 leaves the country each year for unknown reasons.
One such instance involved a Tanzanian national detained by the Dar es Salaam airport police on May 09, 2015 when he was found carrying $230,000 but who had to be released because financial regulations in Tanzania do not limit or prohibit transportation of foreign currency. Police sources said they detain travellers carrying large bundles of foreign currency but it is only to screen them for ‘other issues’ including robberies.
Detentions are a regular occurrence at the Dar es Salaam airport in which some travellers are found in possession of $80,000, $100,000, even as much as $300,000 but they are released because it is not an offence to carry any amount of hard cash when travelling out of Tanzania. Records from other exit points around the country such as border crossings and other airports could not be ascertained—creating the impression amounts syphoned out of the country could be higher than the Dar es Salaam airport shows.
Manager of the Microfinance and Bureau de Change Supervision Directorate of Banking Supervision in the Bank of Tanzania, Eliamringi Mandari said the Minister of Finance is the only authority in Tanzania empowered by law to stop the unlimited transportation of cash out of the country through a ministerial decree which has unfortunately not been issued.
“The movement of physical cash in forex is not controlled in the country because the minister has not issued a decree,” Mandari said. “We are therefore not able to know how much cash in forex has moved out of the country. It’s only the movement in banks that is controlled.”
Mandari said the problem of uncontrolled transportation of hard cash in foreign exchange results from an operational contradiction contained in the Anti-Money Laundering Act used on the mainland, and the Anti-Money Laundering and Proceeds of Crime Act used in Zanzibar where searches and limitations of cash transportation would result in major problems for people travelling in and out Zanzibar from Mainland Tanzania because money is not a Union matter.
Part IV, Section 23 (i) of the mainland Act says “any person, who enters or leaves the territory of the United Republic of Tanzania while transporting or is about to transport or has transported cash or a bearer negotiable instrument in any amount equal or above the amount prescribed by the Minister in Regulations, shall be subject to customs authorities which shall transmit that information to the Financial Intelligence Unit. The customs authority shall have power to seize the whole amount of the unreported cash or bearer negotiable instruments; where any person fails to comply with the reporting obligation provided for under subsection (I), the competent authority may impose any administrative sanction against such person.”
On the other hand, Part III, Section 18(i) of the Zanzibar Anti-Money Laundering and Proceeds of Crime Act says “any person who enters or leaves the territory of Zanzibar through any Zanzibar exit point while transporting or is about to transport or has transported cash or a bearer negotiable instrument in any amount equal or above the amount prescribed by an appropriate authority shall be subject to customs authorities which shall transmit that information to the Financial Intelligence Unit. (2) The Customs authority shall have power to seize the whole amount of the unreported cash or bearer negotiable instruments.”
But money is not a union matter, according to the Tanzania Constitution, while custodian of all currency in the country–the Bank of Tanzania is a union matter. If the Minister of finance would publish the decree to control the transportation of Cash, that would mean everybody travelling between Zanzibar and Mainland Tanzania would have to be searched for possession of cash, which would result in chaos, Mr. Mandari said. The decree has thus not been published–creating the laxity.
Talking to this reporter by phone, the Governor of the Bank of Tanzania, Prof. Benno Ndulu said Tanzania operates with two financial regulation Acts because this is the political agreement reached in the Union of Tanganyika and Zanzibar, adding that this mutual agreement will remain that way until the politicians agree otherwise.
“The rectification now in progress will put a limit to how much physical cash a person can carry when travelling out of Tanzania,” Minister Mpango has said.
Bank of Tanzania data have meanwhile revealed large amounts of foreign exchange from the Bureau de Change system leave the official, monitored financial system to enter a dark, unknown market for purposes unknown—particularly on election years.
In 2015 Tanzania had at least 240 Bureau de Change forex shops. Monitoring of the bureaus to ensure compliance with the laws meant to curb abuse of the shops relies on the receipting procedure in which each customer purchasing foreign Exchange is supposed to ask for a receipt which has to be declared to the Bank of Tanzania and the Tanzania Revenue Authority. But the receipt is only issued if the customer answers four personal questions, include where he lives, where he is taking the foreign exchange to and why. This is in addition to the submission of an acceptable identification card.
Another monitoring procedure to safeguard compliance involves physical inspection of bureau de change operations by Bank of Tanzania officials. But the Bank of Tanzania has less than 20 inspectors to pay surprise visits to the vast network of bureaux across the country.
“We can’t be everywhere in this country,” Mr. Aliamringi Mandari said, adding that monitoring and control of abuse of the liberalized foreign exchange regime should involve other government department such as the police force because they are found where BoT is not available. Giving an example, the Manager said it was for instance illegal to buy and sell foreign exchange without a license. The police should held the BoT in arresting those involved in the illegal trading of foreign currency in places such as Tunduma in Mbeya region where traders walk with bundles of cash in their hands to exchange without a license.
A bureau de change operator in Dar es Salaam, Mr. Ismail H. Ismail also says some customers refuse to provide personal information and forfeit the receipts—which creates a loophole for purchases of foreign exchange whose purposes and destinations are unknown.
Responding to written questions from this reporter, the Bank of Tanzania said monitoring of foreign exchange circulating in the Bureau de Change system in the year 2009 showed a total of $2,010,794 purchased and resold in the country. In the year 2010 a negative $-2,290,019 cash flow was noticed, implying the amount left the monitored market for an unknown destination or market. While this does not necessarily mean the negative cash-flow was siphoned out the country, that possibility cannot be ruled out, the BoT bureau de change supervisory division manager said.
The annual circulation of foreign exchange in the bureau de change system increased to a positive $4,295,754 in 2013 followed by a leap to $36,202,005 in 2014. In September 2015, the circulation revealed a negative cash flow of $-6,850,139 for 2015. Eliamringi said while it may be that traders chose to put their money in pillows for some reason, you cannot rule out the possibility of capital flight.
*This report results from a Thomson Reuters Foundation illicit finance reporting project conducted between July-December 2015.