‘Rising Casinos: a platform for illicit financial flows in Zambia’

A BOOM in any given sector of the economy is always a blessing to the development of the country.

But it seems, this is not the case with the increased casino business activities in Zambia.

Gambling is legal in Zambia. This applies to casinos, slot machines and the national lottery.

About five years ago, Zambia has had three legal casinos in operation within its borders. And these were found at New Fairmount Hotel and Falls Casino in Livingstone while the Majestic Casino is located in Lusaka.

However, there has been a massive increase in Casino businesses, with latest figures indicating that over 35 casinos, with the majority being located in Lusaka, having been registered in the last three years.

But who is establishing these casinos? Is it an indication of a rising middle class with enough money for gambling? Do economic indicators reflect this?

Actually, most casino structures are well built, and posh-looking with ultra-modern facilities, but who is benefiting from these businesses? Is it an aspect of placement, layering and integration of laundered money into the normal financial system?

Given the foregoing, the Financial Intelligence Centre (FIC) has since called for the strengthening of regulations governing Casino operations in Zambia because gambling is a vulnerable platform for illicit financial flows.

According to the national money laundering and terrorist financing risk assessment report released by the FIC, that vulnerability to money laundering of the Casino sector is rated as very high at 0.73 from 1.00.

The FIC has since recommended that applications for casino licences should be properly vetted to prevent criminals or their associates from having any controlling interest in the casinos.

It stated the sector is vulnerable due to the fact that it is not being regulated comprehensively and effectively.

“The law provides for regulation through the Licencing Committee, which in practice is not operational. Instead, there is an individual who has been given the role of licensing casinos at Ministry of Tourism and Arts.

“The licensing process is therefore vulnerability for the sector as the one individual cannot carry out thorough checks on the applicants for licences,” the report read in part.

Releasing the findings of the report, FIC deputy director Clement Kapalu said the other factor contributing to the sector’s vulnerability is the fact that most of the high-value clients are foreigners and politically exposed persons (PEP).

In financial regulation, PEPs is a term describing someone who has been entrusted with a prominent public function. PEPs, generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold.

“Further, casinos offer online gambling which is not properly understood or regulated by the licensing authority. Identification of customers is not performed and source of income is not established.

“There are large cash transactions that take place involving foreigners and PEPs making the sector vulnerable to tax evasion and fraud,” he said.

According to the report that anti-money laundering [AML] controls are weak and do not have any impact on reducing the vulnerability that is inherently present in the sector.

“As a matter of priority there is need to amend the Tourism and Hospitality Act and other relevant laws that deal with the Casino sector to provide for effective and comprehensive overall and AML supervision,” it stated.

At the time of the assessment last year July, there were over 35 registered Casinos in Zambia, with the sector’s contribution to Gross Domestic Product (GDP) standing at a paltry 0.03 percent.

Given that casinos seem to have skeletons in its closets, some stakeholders have called on Government to strengthen regulations governing the sub-sector.

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It is widely believed that the casino business is used by people allegedly involved in illegal money-making ventures who attempt to make their shady money legitimate.

In a recent interview, Stanbic Bank Zambia risk compliance manager Daniel Luswili said there is need to strengthen regulations governing operations of some institutions such as casinos that handle huge sums of money if Zambia is to reduce cases of illicit financial flows (IFF).

He said there is need to have a robust regulatory framework to combat money laundering and other financial crimes.
“Commercial banks are heavily regulated by the central bank but sub-sectors such as casinos are not highly regulated yet huge sums of money are transacted there.

“We need to bring on board everyone [real estate agents, law firms, mobile money agencies] who handles cash so that they are well regulated,” Mr Luswili said.

Mr Luswili said financial crimes are becoming more and more complex due to the advancement in technology.
“We want to see the flow of money being done correctly, this is why banks are kept awake due to the increase in cybercrimes, internet fraud and related crimes,” he said.

Echoing Mr. Luswili’s sentiments, Mr Kapalu said financial crimes have significantly increased.
“Our statistics are based on any suspicious transactions such as drug trafficking, corruption and abuse of office. So far, we have gathered over 1, 000 reports which have been presented to various law enforcement agencies for action and very soon, we are going to see more prosecutions,” he said.

The FIC doesn’t have powers to prosecute but their mandate is to investigate and compile reports on suspicious financial transactions and submit their findings to bodies such as the Anti- Corruption Commission, Drug Enforcement Commission and the Zambia Police’s fraud and anti-money laundering units.

And the Center for Trade Policy and Development executive director Isaac Mwaipopo said Zambia could have avoided negotiating for an International Monetary Fund (IMF) bailout if adequate measures to stop IFF had been implemented.

Mr Mwaipopo has since challenged security wings and other public institutions to urgently act on findings of the FIC report, which revealed how multinational companies are robbing Zambia of billions of Kwacha through IFF.

 According to the FIC suspicious transaction report that Zambia loses about US$3 billion annually.

Mr Mwaipopo said the resources that Zambia keeps losing outstrip the financial aid of US$1.6 billion it is seeking from the IMF and other international financial institutions.
“Zambia is currently negotiating a bailout package from the IMF to help address the current fiscal and economic challenges.
“But these are development paths the nation would have avoided if adequate measures had been taken to curb illicit financial flows,” Mr Mwaipopo said.
To ensure that a boom in casino business makes a meaningful contribution to the growth of the Zambian economy, Government strengthens measures to 
regulate casinos while maximizing business revenues and minimizing any negative effects.

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World over, Casinos are the mainstay of economies in jurisdictions such as Macao, the US state of Nevada and many others.

So Zambia should establish strong regulations to oversee gaming operations while instituting a monitoring system designed to ensure casinos are operating to these mandated guidelines…..ends

This story was produced and written as part of Wealth of Nations, a pan-African media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org

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