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DRC: Gertler affair raises questions over rot in banking sector

By Christophe Le Bec
Posted on Tuesday, 27 April 2021 15:49

Dan Gertler is accused, among other things, of having garnered $1.36 billion in undue profits. © Simon Dawson/Bloomberg via Getty Images

Despite the dominance of the US dollar and prevalence of cash transactions in the Democratic Republic of Congo, Kinshasa bankers say they are putting out all the stops to prevent illicit financial flows from transiting through their institutions. From exemptions granted, to government officials linked to fraud, to whistleblowers sentenced to death: how far does the rot go in the DRC banking sector, and what is being done to clean it up?

“Every time a scandal erupts, the reputation of the Democratic Republic of Congo’s [DRC] entire banking sector takes a hit since our partners, especially our correspondent bankers abroad, deem that our country risk is increasing as a whole,” the head of a Kinshasa-based financial institution tells us.

To say that Congolese bankers could have done without the Afriland First Bank case, which has further damaged the sector’s reputation and put a spoke in the wheels of the bank’s operations in the DRC and abroad, not to mention its relations with regulators, is putting it mildly. This latest saga comes on the back of the “100-days programme” scandal implicating Rawbank, and the Lumumba Papers investigation into BGFIBank’s subsidiary in the DRC.

Both financial institutions stand accused of facilitating illicit financial flows.

Dan Gertler, a controversial Israeli mining magnate and friend of the DRC’s former president, Joseph Kabila, is believed to have used a series of shell companies to open accounts at Afriland First Bank between 2018 and 2020. According to two whistle-blowers, despite being sanctioned by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), Gertler deposited several millions of dollars into these accounts and proceeded to transfer the funds to other accounts held in the country and overseas.

Whistle-blowers sentenced to death

Whistle-blowers Gradi Koko and Navy Malela, former head and deputy head, respectively, of the internal audit department of Afriland First Bank CD, the Congolese subsidiary of Cameroon-headquartered Afriland First Bank, allege that senior management members facilitated financial transactions that violated the bank’s compliance requirements – allegations the financial institution vigorously denies.

The two Kinshasa bankers have been living in exile in France for several months now and were key sources behind a July 2020 report titled Undermining sanctions that was published by the French and British NGOs Platform to Protect Whistleblowers in Africa (PPLAAF) and Global Witness. The document details how Gertler and his associates are able to keep their money moving through the financial system.

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Because Koko and Malela disclosed information covered by banking secrecy, a court in Kinshasa sentenced the pair to death on 3 March, jolting the city’s business community and ending a trial the whistle-blowers consider to be unfair. Their lawyer has said that two hearings for the case were held at the same time, making it impossible for him to defend his clients during the particular hearing that resulted in their conviction.

Representatives for Afriland First Bank deny the lawyer’s claim.

Weak controls

Like other compliance officers working for banks, Koko and Malela were responsible for verifying that Afriland’s staff properly complied with customer due diligence standards, such as verifying the identity of account holders, the nature of their business and the origin of deposited funds. Also referred to as “know your customer” (KYC) rules, they are particularly relevant for politically exposed persons (PEPs), as these individuals present a higher risk of being involved in corruption.

According to the whistle-blowers, who say they saw Gertler at the bank’s Kinshasa headquarters, senior management handled his transactions. They also say their compliance audit work was hindered by a lack of resources.

Unlike the internal audit departments of other major financial institutions like Rawbank and BCDC, ours was extremely small, with just two to four people assigned to perform audit work. And our resources didn’t increase, even though the bank’s business was growing, with 15 branches operating in the DRC and more than 10 offices established as of early 2020,” say Koko and Malela.

Back in Kinshasa, though most bankers say they are appalled by the compliance officers’ death sentence, they are tight-lipped about the case and disappointed that the banking sector has been singled out.

The Banque centrale du Congo, needs to get stricter about fully banning cash transactions over $10,000″

“Banks are the most visible actors when it comes to illicit transactions. The Congolese banking system should absolutely take part in anti-money laundering efforts, but the fight shouldn’t stop there, as there are two other big challenges to meet: first, an informal sector that accounts for some 75% of transactions, most of which are carried out using cash and thus hard to trace. Second, the high dollarisation of the economy,” says Henry Wazne, chief executive of Sofibanque and acting chairman of the Congolese banking association Association congolaise des banques (ACB).

“It’s contradictory for the authorities to allow a certain number of businesspeople sanctioned abroad to thrive in the DRC – people like Gertler, but also the owners of companies like Congo Futur and Mino Congo, which have also faced US sanctions – while prohibiting their bank transactions,” he adds.

Too many exemptions

“And the problem doesn’t just lie with the Congolese authorities: Switzerland’s Glencore and Kazakhstan’s ERG pay royalties to Gertler,” says Wazne. In his view, to better address these kinds of issues, the country’s central bank, Banque centrale du Congo, needs to get stricter about fully banning cash transactions over $10,000, including by applying such a rule outside the banking sector, in line with the provisions originally set out in anti-money laundering legislation.

For Bob David Nzoimbengene, a managing partner at Deloitte DRC who is well versed in the banking sector, the country’s 2004 anti-money laundering law, which took its cue from the best international standards of the day, is sound.

“Regulations aren’t the root of the problem; instead, it’s the exemptions the central bank grants to many businesses, especially those regarding the ban on cash withdrawals of more than $10,000. The practice of granting these exemptions has opened a Pandora’s box, and the exception has become the rule given the importance of the informal sector. And it doesn’t help increase banking penetration, which remains very low,” says Nzoimbengene, who audits several major financial institutions. He adds that 93% of Congolese adults do not have a bank account.

Washington meetings

Nzoimbengene thinks that exemptions have no place in big cities like Kinshasa, Lubumbashi or Kolwezi. “As banking networks have expanded and mobile banking has grown, thereby increasing access to the greatest number of people, enforcing limits on the use of cash is no longer an unrealistic proposition,” he says. He also believes that the legislation could be changed: for instance, banks could be required to put a $100,000 cap on cash deposits rather than on withdrawals.

The bankers contacted for this article maintain that they are fully engaged in efforts to combat illegal money laundering activities. “In addition to setting up compliance departments with well-trained staff and powerful software, which some banks have sunk millions of euros into, the ACB has built a close relationship with the US Treasury, which monitors transactions denominated in US dollars. Since 2017, we’ve met with OFAC officials on several occasions in Washington. On one such visit in late 2019, we sought to reassure them of our commitment to combating illicit financial flows effectively,” says Wazne.

“If we hadn’t gone to Washington, where the Americans lent us an attentive ear, our financial institutions would likely have been cut off from the rest of the global banking system,” a bank executive tells us, adding that Congolese political leaders [HC5] were involved in the meetings in the US capital.

Protecting compliance department independence

The bankers we interviewed concede, however, that some financial institutions are working harder than others to combat money laundering. “Clearly, a certain number of banks have chosen the risky path of processing non-compliant transactions,” says an insider source who declined to name any names.

“Every financial institution has made significant progress, but two problems have arisen,” a chief compliance officer from another bank tells us. “Smaller banks are lacking in resources, struggle to recruit experienced candidates and have a high turnover rate, and bank compliance departments don’t have enough independence from management.”

According to the same source, compliance departments should be overseen by both the institution’s chief executive and an audit committee that includes board of directors members.

ACB’s sanctioning power

“Compliance issues require objective, professional oversight and therefore shouldn’t only fall within the remit of upper management,” says our source, pointing out that the Congolese central bank has recently indicated that banks operating in the DRC must put in place such a dual system of oversight for their compliance departments. “It hasn’t been implemented everywhere yet, but that will soon be the case,” adds our source.

To separate the wheat from the chaff, the ACB is reportedly considering exercising its power to sanction and disqualify its members if they violate the association’s anti-money laundering charter. The measure has sparked heated debate among the heads of the DRC’s 17 banks, three of which (Rawbank, Equity BCDC  and Trust Merchant Bank) together control more than two-thirds of the market.

To get businesses to comply with ethics rules, watchdogs are a must. But according to several bankers, the country’s top financial watchdog, the Cellule nationale de renseignement financier (CENAREF), lacks the budget to enforce such rules, despite it being created in 2004 for the purpose of investigating fraud and imposing sanctions on rule breakers.

“If you take just one look at their offices, it becomes clear that the CENAREF is in dire straits,” says our source, adding that Congolese banks “are better equipped” than the financial watchdog.

“The CENAREF is a legal entity. When it reaches a conclusion, it transfers the case to a regular prosecutor’s office, which rarely has internal financial expertise,” says Michel Losembe, former head of Banque internationale pour l’Afrique au Congo (BIAC), who is sceptical about judicial independence.

While the DRC’s central bank certainly has more resources, its involvement in fraud cases is sometimes viewed as a conflict of interest since it is a state-owned institution. “Members of the government can be linked to some of the fraudulent transactions, which are occasionally made possible by central bank staff,” says a banker, speaking on condition of anonymity. The same source, who estimates that the Congolese state owes around $60m in arrears to the country’s banks, is more concerned that the state will sanction his bank so as to avoid repayment, as opposed to sanctioning it over an irregular transaction.

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