Chinese firms involved in money laundering racket face the music in Tanzania

New Delhi: Chinese involvement in money laundering has been growing lately, with an apparent shift in its money laundering schemes to underdeveloped inland regions. At least 8 Chinese companies, working on various development projects in Tanzania, were found involved in money laundering activities by the Tanzanian authorities. 

The senior management officials of these companies have been detained since the first week of November. Simultaneously, 6 senior employees of China Commercial Bank Limited (CCB), based in Dar-es-Salaam, were also detained on alleged money laundering charges. All the Chinese companies, whose senior management officials have been detained, have their accounts in CCB, through which all the money laundering activities suspected to be channelized.

Subsequently, the Bank of Tanzania (BoT - Tanzanian Central Bank) took over the operations of CCB on November 19, 2020, quoting the failure of the Chinese bank to meet regulatory requirements regarding capital adequacy as the apparent reason. 

"Thus, to permit China Commercial Bank Limited to continue with banking operations while under a state of undercapitalization is detrimental to the interests of depositors - and poses a systemic risk to the stability of the financial system,” Central Bank of Tanzania (BoT) said in a statement published by The Citizen.

The actual reason for this take over was the unexplainable discrepancy in the CCB’s accounts, found during an audit conducted by the BoT and a Task Force. The Bank had shown cash of Tanzanian Shilling 20 billion and Chinese Yuan two million in their possession on papers, whereas actually, they were having cash of Tanzanian Shilling 250 billion and Chinese Yuan 20 million.

During the audit, it was also found that CCB was conducting an unaccounted monetary transaction with some banks in New York. The confiscated loose slips carrying amount, date, name of Bank and some codes in relation to such unaccounted transactions totals of Tanzanians Shilling 250 billion. However, the real transacted value could be much higher.

Having in possession of more than ten times of cash than the bank documents and conducting an unaccounted transaction based on loose slips helped BoT to make a case of money laundering against the Chinese Bank and the Chinese companies investing in the banks.

CCB was opened in Tanzania in 2012 in the name of bringing in Chinese investment to Tanzania. However, only Chinese companies were allowed to have their accounts or do any transactions in the Bank. No local employees were ever recruited by the CCB in order to safeguard the information of its involvement in money laundering activities.

Presently, the Board of Directors and Management of CCB stands suspended and the bank has been closed by the BoT for normal business till up to mid-February 2021.

Meanwhile, the Chinese government is trying to cover up the entire incident. Chinese President Xi Jinping made a phone call (December 15) to his Tanzanian counterpart in order to address the issue of detention of senior Chinese company officials and bank employees. Moreover, Chinese Foreign Minister, Wang Yi is also likely to visit Tanzania in January 2021, primarily to negotiate the issue of release of the above Chinese detainees.

It is very likely that the issue would be buried down in an exchange of some financial favours from China to the fund-deficient country. It is being anticipated that China would offer to provide financial assistance for the Julius Nyerere Hydro Power Project, which is facing a severe financial crunch. The power plant is being constructed by Arab contractors on Rufiji River, but the progress of the project has been hampered due to lack of funds. China would certainly try its best to lure Tanzanian leadership to release of the Chinese detainees and conceal the entire episode.

According to the 2015 International Narcotics Control Strategy Report (INCSR) of the Bureau of International Narcotics and Law Enforcement Affairs of the US State Department, China leads the world in illicit capital flows. 

INCSR, which monitors international money laundering, also claims that China is not only a leading source of illegal money transfers, but it consistently fails to cooperate with other countries in resolving cross-border money laundering as well. 

The report also notes that China has adopted new money laundering methods including illegal fundraising activity, cross-border communication fraud as well as ill-practices in banking, securities, and transportation services.