US embassy cable - 05LILONGWE448

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, Economic 
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