GOVERNMENT CLOSES FINANCE BANK OF MALAWI

C O N F I D E N T I A L LILONGWE 000448

SIPDIS

STATE FOR AF/S ADRIENNE GALANEK
STATE FOR EB/IFD/OMA FRANCES CHISHOLM
STATE FOR EB/IFD/ODF LINDA SPECHT
TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA/BEN CUSHMAN
JOHANNESBURG FOR FCS
MCC FOR KEVIN SABA

E.O. 12958: DECL: 05/25/2015
TAGS: EFIN KCOR KMCA EINV PREL MI BUD FIN
SUBJECT: GOVERNMENT CLOSES FINANCE BANK OF MALAWI


Classified By: Econoff W. Taliaferro for reasons 1.4 b and d


1. (U) In a move that took the Malawian business community by
surprise, the GOM revoked the license of Finance Bank of
Malawi (FBM) and closed the bank without warning on May 19.
In public statements, the GOM has said the bank was regularly
violating the country's banking regulations. GOM sources
have told us the leading reason is that FBM has been
externalizing foreign currency illegally. Indeed, at a
public speech on May 20, President Bingu wa Mutharika made a
point of excoriating "foreigners" (FBM is owned by South
Asian residents) who move profits illegally out of Malawi.


2. (C) FBM is widely thought to have been flouting banking
regulations for years, mainly for moving money out of the
country. A number of banking industry sources say FBM had
been protected by former President Bakili Muluzi, who was
personally using the bank for expatriating money. (In a
recent conversation, the director of the Anti-Corruption
Bureau (ACB) professed ignorance on this point.) Several
years ago, Reserve Bank of Malawi shared information with
post pertaining to falsified documents used by FBM to justify
international transactions. Recently, one senior banking
official told us that FBM had used counterfeit stamps from
his bank on a number of documents.


3. (U) This case came to crisis as the result of an employee
complaint to the Anti-Corruption Bureau (ACB). According to
the ACB director, the manager of the Lilongwe branch was
arrested last week for witholding selected information
subpoenaed by the ACB as it investigated the complaint. This
indicated that the bank was complicit in the transactions, so
the ACB requested that the central bank and finance ministry
take action. The Ministry of Finance then revoked the bank's
license, and the Reserve Bank of Malawi promptly closed the
bank. Since then, FBM's lawyers have won a court injunction
against the closure, which GOM is challenging.


4. (C) COMMENT: The closure of Finance Bank is a mixed bag.
On the one hand, Mutharika's anti-corruption stance seems to
have removed whatever political protection was once afforded
to FBM. And the ACB appears to have done a competent
investigation that resulted in swift and certain action. On
the other hand, the action is already being criticized as
unnecessarily impacting the bank's legitimate customers--a
criticism that has some validity. As well, this incident is
evidently adding fuel to the anti-Asian sentiment among
Malawi's political leadership. That Mutharika has chosen to
point out that it was "foreigners" behind the violations is
regrettable at the very least. Finally, if it turns out that
FBM is guilty of money laundering, Malawi lacks the legal
structures to prosecute effectively. The unanticipated
result of this may be to smooth the way for Parliament to
pass an anti-money laundering bill at last.
GILMOUR