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A WORLD BANK STUDY Public Disclosure Authorized Public Disclosure Authorized Ill-gotten Money Public Disclosure Authorized and the Economy EXPERIENCES FROM MALAWI AND NAMIBIA Public Disclosure Authorized Stuart Yikona, Brigitte Slot, Michael Geller, Bjarne Hansen, Fatima el Kadiri WORLD BANK STUDY Ill-go en Money and the Economy Experiences from Malawi and Namibia Stuart Yikona Brigi e Slot Michael Geller Bjarne Hansen Fatima el Kadiri Copyright © 2011 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org 1 2 3 4 14 13 12 11 World Bank Studies are published to communicate the results of the Bank’s work to the development community with the least possible delay. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally-edited texts. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The fi ndings, interpre- tations, and conclusions expressed in this volume do not necessarily refl ect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judge- ment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmi ing portions or all of this work without permission may be a violation of applicable law. 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ISBN: 978-0-8213-8887-7 eISBN: 978-0-8213-8888-4 DOI: 10.1596/978-0-8213-8887-7 Cover design: Sanjay Seth, SRS Creative Photo credit: Ge y Images Library of Congress Cataloging-in-Publication Data Ill-go en money and the economy : experiences from Malawi and Namibia / Financial Market Integrity, Finance and Private Sector Development, The World Bank. p. cm. “This publication was wri en by Stuart Yikona ... [et al.]”--Acknowledgements. ISBN 978-0-8213-8887-7 -- ISBN 978-0-8213-8888-4 1. Money laundering--Malawi. 2. Money laundering--Malawi--Prevention. 3. Malawi--Economic condi- tions. 4. Money laundering--Namibia. 5. Money laundering--Namibia--Prevention. 6. Namibia--Eco- nomic conditions. I. Yikona, Stuart Makanka. II. World Bank. Finance and Private Sector Development. HV6771.M3I45 2011 364.16’8--dc23 2011028914 Contents Foreword ................................................................................................................................... vii Acknowledgements ..................................................................................................................ix Acronyms and Abbreviations .................................................................................................xi Executive Summary ............................................................................................................... xiii 1. Introduction ............................................................................................................................1 Concepts of Money Laundering .......................................................................................1 “Economifi cation” of Money Laundering ......................................................................3 What is AML? ......................................................................................................................4 AML and Economic Development ...................................................................................5 Research Objectives ............................................................................................................6 Outline of the Report .........................................................................................................8 2. Methodological Framework ............................................................................................... 10 Economic Eff ects ............................................................................................................... 10 Economic Eff ects of the Underlying Criminal and Illegal Activities ........................ 11 Economic Eff ects of the Circulation of Ill-go en Money ............................................ 12 Magnitude .......................................................................................................................... 15 Methodology ..................................................................................................................... 18 Countries of Focus: Malawi and Namibia .................................................................... 19 3. Country of Focus: Malawi ..................................................................................................2 5 The Malawi Economy ...................................................................................................... 25 The Financial Sector ......................................................................................................... 26 The Anti-Money Laundering (AML) System ............................................................... 26 Sources of Ill-go en Money ............................................................................................ 28 Corruption ......................................................................................................................... 28 Tax Fraud ........................................................................................................................... 35 Cannabis Production ........................................................................................................ 37 Other Crimes for Profi t .................................................................................................... 39 Illegal Foreign Exchange Dealing .................................................................................. 42 Transfer Pricing ................................................................................................................ 43 Spending Pa erns ............................................................................................................. 44 Policy Considerations ...................................................................................................... 46 4. Country of Focus: Namibia ................................................................................................ 53 The Namibian Economy .................................................................................................. 54 The Financial Sector ......................................................................................................... 56 iii iv Contents The Anti-Money Laundering (AML) System ............................................................... 58 Sources of Criminal Money ............................................................................................. 60 Corruption ......................................................................................................................... 61 Organized Crime .............................................................................................................. 67 Tax Fraud ............................................................................................................................ 70 Cross-border Money Flows ............................................................................................. 71 Spending Pa erns ............................................................................................................. 73 Policy Considerations ...................................................................................................... 76 5. Summary, Conclusions, and Policy Considerations ..................................................... 81 Main Findings ................................................................................................................... 82 General Findings ..............................................................................................................84 AML and Financial Inclusion ......................................................................................... 87 Abusive Behavior ............................................................................................................. 88 Key Recommendations .................................................................................................... 89 Follow-up Research ..........................................................................................................8 9 Boxes Box 1.1. Terminology ..................................................................................................................4