Ill-Gotten Money and the Economy

A WORLD BANK STUDY
Ill-gotten Money
and the Economy
EXPERIENCES FROM MALAWI AND NAMIBIA
Stuart Yikona, Brigitte Slot, Michael Geller,
Bjarne Hansen, Fatima el KadiriWORLD 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
44Copyright © 2011
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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
4444Contents
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 E ff ects ...............................................................................................................10 ff ects of the Underlying Criminal and Illegal Activities ........................ 11
Economic E ff 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 .................................................................................................. 25
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
444iv 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 .......................................................................................................... 89
Boxes
Box 1.1. Terminology ........4
Box 2.1. A rition of Criminal Data (indicative scale only) ................................................17
Box 3.1. Malawi Corruption in Historical Perspective ........................................................31
Box 3.2. Police Uniforms ..............................