Page 71 - ACAMS-Today-V20N3

Narcotics traffickers in Colombia and Mexico invented and improved the Black Market Peso Exchange (BMPE), making it arguably one of the largest money laundering
schemes in the world. In a variant of the BMPE, Zimbabwean cartels exchange money on the black market to move the proceeds of corruption outside of Zimbabwe to offshore accounts. These cartels are finding innovative ways to circumvent anti-money laundering (AML) controls, sanctions, perennial cash shortages and strict correspondent banking restrictions imposed on Zimbabwean financial institutions (FIs).
Thus, stronger responses are needed from the U.S. to limit the effects of BMPE-like techniques in states that use the U.S. dollar as an official currency. This article will bring to the fore the AML challenges faced by sovereign states that use the greenback as the official legal tender with Zimbabwe as a case study.
Dollarization
According to Kurt Schuler, an international economist at the U.S. Treasury Department, “Dollarization is used in varying senses that mean everything from widespread illegal use of foreign currency alongside domestic currency to official approval for use of foreign currency as the main or sole means of payment and unit of account.”1 In 2009, Zimbabwe became the world’s only multi- currency economy when it adopted the dollar, the euro, the South African rand and other currencies as legal tender.2 Thus, Zimbabwe joined about a dozen other territories and independent sovereign nations that use the U.S. dollar as their official currency. However, other currencies remain far behind the U.S. dollar in daily usage.
In 2016, to fund government spending and help ease the liquidity crisis, the central bank began printing a surrogate currency called bond notes that were declared to be useful “in guarding against externalization of the US dollar.”3 Bond notes were pegged, at least theoretically, to the dollar.4 Unsurprisingly Zimbabweans had no faith that they were equivalent and, on the black market, bond notes lost value against the dollar. In 2019, the government declared that all commercial transactions shall be conducted electronically using the Real-Time Gross Settlement (RTGS) dollar, understood locally to describe money that has been transferred to a bank account.5 Despite all the efforts by the government to re-introduce a Zimbabwean currency, a virtual currency of sorts, and banning foreign currencies for local transactions, the local currency was quickly devalued. Only the black market thrived, resulting in multiple exchange rates, while the shortage of cash persisted.6
Significantly, the government has given up on the pretense that the bond note and the U.S. dollar have the same value. In 2020, the Reserve Bank of Zimbabwe introduced an auction system that operates on the Reuters Forex Trading platform, a real-time electronic trading system.7 These auctions are designed to improve transparency and efficiency in the trading of foreign exchange in Zimbabwe.8 Sources of the government’s greenback are not published, raising fears that they could be illicit. However, the black market offers a much better rate than the official rate.
When a government corrupts its official market, a black market arises in equal measure to recreate a “free” market
Black market foreign exchange dealers are “fixing” the economy
Ordinary Zimbabweans are paying a heavy economic price for the political transgressions of their leaders. The once-prosperous south African country’s economy is so weak from de-industrialization, low investment, low exports and high debt that it does not generate an adequate inflow of fresh greenbacks needed for its dollarized economy. Once in the system, the note will be in circulation until it disintegrates. Currency traders are even mending old bills that are worn out or shredded by rats.9
Black market traders are not just fixing shredded bills, they are fixing the economy in a country where the black market has become the norm.10 The black market is predominantly a roadside currency trade where the U.S. dollar is exchanged for local currency as well as other currencies in the multi-currency basket. Most of the trading happens in the streets of major cities and towns in broad daylight, as if this was legal. As one commentator noted, “The trading of money had become one of the largest employers, as tens of thousands of people throughout the country saw it as the only viable source of income.”11 When a government corrupts its official market, a black market arises in equal measure to recreate a “free” market. Ironically, its illegality assures that it remains free of regulations and functions effectively.12
Whose responsibility is it to keep the greenback clean?
There are no clear guidelines on dollarization. Author Ed Malo argued that dollarization is deemed complete when a country’s government declares the U.S. dollar to be the official legal tender, and he said: “This can also be accompanied by a formal agreement between the country adopting the currency and the country that actually issues it, but not necessarily.”13 This lack of regulation has kicked the door open for money laundering by the Zimbabwean cartels.
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