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Bank Frauds in Zimbabwe

How much is the public told?

With most financial institutions turning to computerisation to facilitate speedy monetary transactions, Zimbabwe may well have thrown itself into the complicated world of computer fraud. But like elsewhere in the world the extent of this industry, which now reportedly accounts for nine percent of the world trade estimated at US$80 billion (about Z$400 billion), can never be truly known because those defrauded, particularly financial institutions would rather keep quiet about it and protect their reputation than take the risk of going to court and “wash their dirty linen in public”.

According to Patricia Franklin in her book Profits of Deceit, banks, brokerages and investment firms suffer most from computer frauds but only 15 percent of these computer frauds are reported to the police because employers feel “the adverse publicity would damage their corporate image or the company’s share price.”

A member of London’s Fraud Squad is quoted in another book by Mihir Bose and Cathy Gunn, entitled Fraud, as saying: “Fraud is like VD. IF you’ve got it, you don’t talk about it.”

John Sulan, a prosecutor in one of the biggest fraud cases in Hong Kong which involved US$1.2 billion (about Z$6 billion) had this to say: “Commercially, no bank really wants to have its dirty linen washed in public. Banks are interested in doing well in the future, not sitting moping about the past. Once they write off certain debts, they write them off and get on with making money in the future. A trial is time consuming and you’ve important people involved. Bankers want to protect their own position as individuals because they have become far too close with an individual and perhaps accepted gifts which they shouldn’t have accepted. I don’t think they would like to get their money back at the expense of having to put all their dirty linen on the line.”

This seems to be typically what is happening in Zimbabwe. This could also have been facilitated by the fact that until recently there was only one publicly quoted commercial bank, Zimbabwe Banking Corporation, which was joined last year by Barclays Bank. Private banks have no obligation to publish their annual reports.

Incidentally, Zimbank, has had its fair share of publicised frauds but it appears that they might just be the tip of the iceberg.

The latest scandal allegedly involved a tobacco merchant, Peter Fleming Smith, who is reported to have defrauded Syfrets Merchant bank, a subsidiary of Zimbank, of between $20 and $45 million. Smith is reported to have borrowed the money to buy tobacco for resale before mysteriously leaving the country. Syfrets, however, said the issue was not being treated as fraud but simply as an outstanding debt. Nothing has been heard about the case since publication of the story in the Financial Gazette.

Zimbank was rocked by its first major scandal two years ago which led to a Parliamentary investigation.

This was after Murehwa North MP Alois Mangwende produced various documents in Parliament in which he claimed that the bank’s chief executive, Leonard Tsumba and then general manager John Grey, were at the centre of a possible scandal of financial embezzlement and irregularities, fraud, blackmail, bribery and threats.

At the centre of the scandal was a company called Lorac which later went into liquidation. Lorac was reported to be owing Zimbank $7 million, Merchant Bank of Central Africa $5 million, Von Siedel Grindlays Trust $342 000 and Beverley Building Society $171 000. The proprietor of the company, Mike Frewster, left the country and was reported to have settled in Greece.

Mangwende said an investigation into the alleged fraud was once set up but members of the fraud squad involved ended up resigning and being offered jobs elsewhere. The docket on their investigation, he also said, was found elsewhere other than the police offices.

In what it called an unprecedented move, Zimbank published a quarter page advertisement in which it said the allegations made by Mangwende were unfounded. It said the bank had taken the unusual step of publishing the advert because the unfounded allegations made by Mangwende against its senior staff and other banks could have serious repercussions on the banking community as a whole and therefore on the country.

The bank also said it believed Mangwende’s source of information was E Mashamhanda a bank employee who is said to have been suspended for incompetence and insubordination. It said when Mashamhanda was suspended he had indicated that he would do his best to damage the bank’s image.

It is not clear whether the monies owed by Lorac have since been repaid but the Parliamentary investigation into the matter has since been completed. Finance Minister Bernard Chidzero, told Parliament last month that the investigating committee’s report had been sent to President Mugabe and will be brought back to Parliament.

The Insider also understands that at the same time the tobacco merchant story surfaced Zimbank was battling to quell another fraud, this time involving its own branch managers. An amount of up to Z$2.5 million was mentioned and it allegedly involved managers at four branches: Gweru, Mutare, Chinhoyi and Victoria Falls. The managers were, however, not fired but transferred to other centres because the amount involved was too insignificant, reports say. It was also felt that the dismissal of four branch managers at one goal could spark greater adverse publicity than the loss of $2.5 million.

According to its latest interim report, Zimbank had a net operating income of $11.259 million in the six months up to March 1992. This was an increase of $2.606 million, or over 30 percent, above the income for the comparable six months last year.

The fraud is reported to have been masterminded from the Gweru branch and involved businessmen and politicians who were given huge loans utilising suspense accounts one of which The Insider got hold of.

The Insider could only obtain names of two businessmen involved, one a transport operator in Gweru and the other a businessman in Gokwe. It is alleged that the businessmen – who are believed to have offered kickbacks to the managers were given loans using the suspense accounts. At the end of the month when the businessmen were expected to pay back part of the loans the accounts were sent on a merry-go-round to the other three branches.

One amount The Insider was shown was a staggering $590 000 loan given to the transport operator to purchase a new truck.

Normally, money to purchase vehicles and equipment is given by the financial arm of the commercial bank and Zimbank’s financial is Scotfin which has a branch in Gweru.

While Zimbank seems to be in the forefront, this may simply be because it is a publicly quoted company and the government has a majority shareholding in it. People are therefore more interested in its performance because public funds are involved. But this is not to say it has been worst hit. It may just be that it is more open to scrutiny.

The country’s central bank, the Reserve Bank of Zimbabwe , has also suffered similar fate. It was allegedly swindled out of Z$3.9 million and the case is still pending. The two people allegedly involved are John Miller who has since been arrested and Titus Veveta Pasipanodya who is still at large.

Miller is alleged to have connived with Pasipanodya, who was a central bank employee to transfer #775 024.34 (about $3.9 million) to a United Kingdom bank account. Pasipanodya is said to have done so using Reuters computer lines and disappeared soon after transferring the money to a Barclays Bank account in London.

It is alleged that Pasipanodya tried to deposit the money into a Lloyds account but the bank refused to accept the money because certain information was missing and the Reserve Bank did not have an account with Lloyds. The case only came to light when police flashed Pasipanodya’s picture in the media seeking information which could lead them to Pasipanodya who they wanted to interview in connection with a case of fraud.

Also pending is the case of four Standard Chartered Bank employees who are alleged to have defrauded the Gweru branch together with businessman John Shinga of about $220 154.86. The employees included branch manager Douglas Kanengoni, account manager College Ntini, typist Judith Karimazondo, and messenger Elias Chinyimba. The employees are reported to have swindled the bank of the money by claiming to have given clients money to purchase vehicles from Shinga’s Midlands Truck and car Sales.

Another computer fraud case was that of Admire Murandu, who earned only $790 a month, but managed to swindle the now defunct Bank of Credit and Commerce of $522 400. Using a password Murandu managed to transfer monies into his brother’s account with the BCCZ on 57 occasions. Since he was an employee, he used signed vouchers, without having to produce the passbook to withdraw the money.

Murandu then bought a plot worth $50 000, five cars worth $150 000, a bottle store, restaurant and supermarket valued at $110 000, two video cameras, a disco and a colour television.

His actions were only discovered after Alzay Enterprises deposited $2 451 into its account with the bank. The amount was understated by $30. Murandu, who had spotted the mistake, transferred the $30 into his brother’s account. This was traced when Alzay queried the discrepancy and led to the uncovering of the fraud.

The Bank of Credit and Commerce has since collapsed because its parent company was involved in massive frauds internationally, including money laundering.

There is no doubt that even more serious frauds may have been swept under the carpet but what makes the Zimbank case interesting is that since it is a publicly quoted company, are the shareholders briefed on the frauds or they are simply written off and the shareholders are presented with glossy reports about 30 percent increases in turnover and an increase in the dividends from 52.89 cents a share to 69.82 cents a share which indeed is good news considering that the stock exchange has been tittering during the past few months.

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