Community Voices On Corruption And Illicit Financial Flows IFFs In The Mining Sector

Written by Alice Zikiti

Since Illicit Financial Flows (IFFs) are deemed to be technical in nature, the caveat is that communities affected by IFFs need to be capacitated to understand this seemingly elusive concept. Without a doubt, IFFs and corruption in the mining sector pose a significant threat to Section 13 (4) of the Constitution. The state is constitutionally required to put in place mechanism to ensure community benefits from exploitation of resources in their areas.
To help empowerment of resource rich communities to hold government and mining companies accountable on curbing IFFs, ZELA conducted a two-day workshop at Runde Lodge, Zvishavane on 1-2 June 2018. The workshop was on participatory assessment of the nature, extent and trends of IFFs and corruption. Participants came from several wards including Murowa linked with diamond mining, Mhondongori- platinum, chrome and gold mining and Mapirimira and Shauke wards – chrome mining. They were 12 females and 11 males making a total of 23 participants.
Because of its diverse mineral wealth, Zvishavane district is an interesting area to explore corruption and IFFs risks linked with different minerals. To compound the interest, State Owned Enterprises (SOEs), Multi National Enterprises (MNEs), artisanal and small-scale miners represent all the players commonly found in the mining sector.
IFFs cannot be comprehensively defined as they are broad and extensive. They are however, characterized with criminal and immoral activities which have an impact of contravening national or international laws, tax laws and public policy. Such criminal activities in the mining sector may include corruption, tax evasion and bribery
The mining sector in Zimbabwe is a major foreign currency earner, contributing not less than 50% to total export earnings since 2010. Given that the country does not have its own currency, export earnings are therefore a major source of cash generation. As such, IFFs and corruption undermine the capabilities of the country to leverage on its mineral wealth endowment to earn much needed foreign currency to import essentials like fuel, medicines, raw materials for manufacturing companies, machinery and to service national debts. Current cash challenges and meagre foreign currency reserves are clear impacts of IFFs and corruption.
Externalisation of funds is another crippling creature to the economy, the published externalisers list showed that the highest amounts externalised were form mining companies. A close-to-home example of how externalisation may cripple the nation economic activities was given, which was of a former Zvishavane Mining company. The mine was closed after explicit externalization of funds by its owner. When the owner bought the mine, for the first time, haulage trucks with South African registered plates were seen carrying extracted minerals from Mashava to Zvishavane depot and to South Africa. This exposed the country to foreign currency externalisation risks as the transport company owned by an indigenous player was registered in SA and payments done using scarce foreign currency.
The participants seemed to know the loopholes in which leakages are found, as most of the evidence came from them. However, they needed guidance to understand the nature and manner in which IFFs can be perpetrated. Group discussions were thus conducted, using case scenarios which capture the set of facts or events that can be used to facilitate IFFs. Important lessons learnt amongst others were capital flight, tax havens, secrecy jurisdiction, money laundering, base erosion and false invoicing.
Building from this learning, emerging IFFs risks and key players per minerals found Zvishavane were articulated as follows:
Platinum and chrome
Risks include corruption, false invoicing/under valuation of minerals. Key Players are Politicians, traditional leaders and business people.
Corruption: Zvishavane as a mineral rich district, attracts corruption from politically influenced people who abuse their powers to acquire personal benefits, be it in large scale mining or artisanal small-scale mining.
On top of inadequate benefits, communities in Zvishavane are deprived of business opportunities to boosts their livelihoods. There is corruption in procurement of services by big companies like Mimosa. An example was given of late politician from Zvishavane who used his political influence to register three different companies that are exploiting low hanging fruits on procurement from Mimosa mine like cleaning services. The company would then say it cannot contract anymore of the local communities’ contractors as they already have indigenous contractors on board yet it was one politician’s companies. This has displaced community enterprise development due to corrupt unfair deals.
Further, there is corruption by fronting risks through abuse of the indigenous policy requirements that is still applicable to diamond and platinum minerals which are also available in Zvishavane. A company would illicitly deal with a Zimbabwean national, usually those in power and let him act as one of the shareholders to claim compliance with the policy requirements yet he will be only be receiving favours like houses, cars and bursaries.
Chrome mining is also flooded with corrupt undertakings in the form of bribery. It is alleged that Chinese chrome mining companies in the area bribe traditional leaders to overlook statutory requirements such as environmental impact assessments. It would be very questionable to believe if they contribute to the statutory environmental fund for rehabilitation. Interestingly, there is an outcry of open pits left by these Chinese companies and/or in joint venture with some local politicians.
‘If we ask them for EIA documents they will just say, president Harare office knows, or chief, ask chief, that’s it! So we are saying when the traditional leaders are benefitting from this bribery it makes advocacy for change very difficult’, says one participant.
The other alleged that, ‘all the five traditional chiefs of Zvishavane have not less than three houses in town bought by mining companies to silence them’.
Its even intimidating for community members to confront such corruption trends which they know that there are politicians involved. One participant during side discussions stated that a chief was removed in Murowa for trying to voice out corruption.
Lack of transparency: IFFs can also be furtherd due to lack of transparency by the mining companies themselves by not disclosing how much are they contributing to national fiscus through taxes or to local government. This would enable the community to assess if it is getting a fair share and also to monitor and track the funds. Lack of transparency also fuels corruption because if everyone is in the dark, there are high risks of mismanagement of funds by officials with access to it. In light of that, calls for increased transparency in the mining sector should not be ceased. Follow best practices of companies publishing what they pay to the government and government in turn, announces how such money was utilized and how.
Lack of monitoring and under declaration risks: Lack of effective monitoring might be enabling the mining companies to undervalue the minerals they are getting especially when they export the mineral concentrates to be processed outside the country. For instance, platinum is a group of metals which is mined in Zvishavane but exported to South Africa as ore for processing yet there are no government engineers or agents to monitor to ensure that the right quantities of different minerals are declared for tax purposes to avoid leakages. There are fears that, Mimosa might be declaring platinum only when it submits its reports for taxation. Or if it does declare all of the metals there is no independent verification of the quantities and qualities extracted hence, leaving loopholes which can be exploited resulting in mineral or revenue leakages through IFFs.
The same applies to chrome, it is exported as ore to be processed outside the country.

‘These Chinese even write their reports in Chinese language as well, making it difficult to read or cross check the records’, said a participant.
There is thus a need to place government specialists in mining companies that export ore to monitor and assess operations to avoid IFFs by false invoicing and mineral leakages.
Risks here include illegal gold trade and smuggling. Key player: artisanal miners and government’s security agencies.
IFFs in artisanal gold mining: This sector can easily be perceived as small but surprisingly contributing more of IFFs. The fact that gold is easily accessible, easy to carry and that it can be used as a form of currency outside the country makes it more vulnerable to smuggling. Local miners also sell gold at the black market where no government revenue will be collected through tax. One participant who is also involved in artisanal gold mining said the main reasons why they sell their gold at black market is because they do not have mining licenses so they fear to be apprehended if they present it to formal market, Fidelity Printers and Refinery (FPR). They said decriminalisation of gold only happens when you are finally within the FPR premises, before that or during your way you can be arrested at any time since the police will say the laws on gold trading is still intact.
‘These are the issues, that’s why we prefer black market where we can sell our gold without any questions asked’, an artisanal miner said.
Consequently, the no questioned asked policy championed by RBZ and Ministry of Finance is not working smoothly on the ground.
Another reason is of price differences, black market price was said to be higher that the official pricing. Black market initially buys at $50 per gram and it pays the full purchase price in hard cash, United States dollars, and if you have more gold you can even negotiate for a higher price thus lucrative. At FPR on the other hand, prices will be around $45 per gram and it will pay 70% in cash and the balance in electronic transfer. On top of that there will be tax and purification charges at FPR which miners will be trying to avoid.
It is plausible to argue that increased transparency, clear and policy-based legalization of artisanal gold mining and effective monitoring can help curb IFFs in the mining sector and beyond.

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