Wilfred Edwin
29 June 2008
Nairobi — All commercial banks that handled and processed monies and payments related to the Bank of Tanzania's external payments arrears (EPA) scandal are to be investigated under the recently enacted Money Laundering Act.
This is according to a commitment that the government of Tanzania made to a recent mission of the International Monetary Fund that was in the country in March to review the country's performance under a programme with the IMF.
The details are contained in a report of the mission that has been published by the Fund. The revelations came in the wake of an extraordinary statement by Finance Minister Mustafa Mkulo that has been widely interpreted as signalling a lack of political commitment to closing the chapter on one of the worst scandals to hit the country's central bank in years.
Eyebrows were raised last week when Mr Mkulo said the funds involved in the EPA scam were not government money but belonged to a number of private firms and that the Bank of Tanzania (BoT) was just an agent.
A special audit of the external payments arrears (EPA) account at the Bank of Tanzania conducted by Ernst & Young Co on behalf of the Controller and Auditor General was concluded in December 2007.
It identified serious improprieties in the management of the account. The central findings, released by the government in January 2008, were that a total of Tsh133 billion (about $113 million) was paid under the EPA scheme during 2005/06 (July- June) to 22 local companies based on fraudulent documentation or without any supporting documentation.
Upon receiving the report, the governor of the BoT was dismissed. Furthermore, President Jakaya Kikwete announced the immediate suspension of operations under the EPA scheme until proper control procedures were established, and instructed the Attorney General, the Inspector General of Police, and the Director of the Prevention and Combating of Corruption Bureau to initiate appropriate legal proceedings against all companies and individuals involved and to recover the misappropriated funds.
The report by the IMF said that, based on the recommendations of the special audit, the authorities have prepared and are implementing an action plan to strengthen the internal governance of the BoT and to improve the management of the EPA account.
Steps already taken include the appointment of a new governor and board of directors at the BoT. The new Director of Internal Audit reports directly to the board, rather than only to the governor, and the Audit Committee of the BoT is now chaired by an external member of the board rather than the governor to allow unencumbered scrutiny of all financial transactions.
The IMF report says that the next steps include drawing up a detailed memorandum of understanding between the BoT and the Ministry of Finance specifying mutual responsibilities, covering in particular the future operation of the EPA account, and determining the scope and timetable for moving various commercial activities - such as part ownership in a gold company and various credit guarantee facilities - off the balance sheet of the BoT.
According to the report, the authorities will carry out a verification of the remaining EPA claims and will develop a strategy for settling any remaining legitimate obligations. These claims will be included in the public debt database, and the Debt Management Unit at the Accountant Generals Office will be strengthened to include monitoring of EPA transactions in accordance with regular government debt service procedures.
Beyond the recommendations of the special audit, the authorities have requested the IMF to prepare an updated safeguards assessment to assist in strengthening the BoT's internal controls and governance as well as a plan to review the regulatory framework.
Mr Mkulo told the National Assembly last week that the EPA account was constituted of money deposited at the then National Bank of Commerce (NBC) by Tanzanian traders who in the 1980s borrowed from outside the country to pay for industrial raw materials, spare parts and other equipment through suppliers' credits.
The minister said most of the traders repaid their debts in Tanzania shillings through their respective accounts at the then NBC, but the bank failed to pay the creditors due to lack of foreign currency, which was at the time in short supply.
According to the minister, when the exercise to restructure the bank began in the 1990s, it was decided that the traders' accounts be moved to the central bank where a special account by the name of EPA was opened. "BoT was directed to verify claims by foreign companies that extended loans to the traders to establish those who qualified for payment," he said.
"It is therefore obvious that the money transferred to BoT from the then NBC did not belong to the government. Thus there is no basis for questioning why the funds were not included in the government's budget. Those who got the money fraudulently are different from the ones that NBC owed," he said.
The minister was reacting to remarks made in the house by Chadema MP Dr Wilbroad Slaa (Karatu) that the funds belonged to the government and that a statement made by Mr Mkulo when winding up debate on the budget two weeks ago that indicated that the funds were not government money was misleading.
Dr Slaa, the Deputy Leader of the Opposition in the House, said a thorough investigation they conducted revealed that the money originated from the Debt Buy Back Programme.
According to Dr Slaa, an audit by Deloitte and Touche in 2006, verified by Ernst & Young in 2007, confirmed that 22 companies did business with "fake companies" and deposited no money at BoT for the purpose of fulfilling the conditions of the Debt Buy Back Programme.
"The funds swindled were government money," he insisted when tabling his camp's statement regarding Prime Minister Mizengo Pinda's speech on government activities and the 2008/09 budget proposal for his office, Regional Administration and Local Governments and the Speaker's office.
Omega Ngole, spokesperson for the Justice and Constitutional Affairs Ministry, told The EastAfrican last week, "The presidential committee report will be presented to the president sometime next week and the truth will be out."
The crack team has been led by Attorney General Johnson Mwanyika.
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