Malawi is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Malawi was undertaken in 2019. According to that Evaluation, Malawi was deemed Compliant for 17 and Largely Compliant for 12 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 0 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.
US Department of State Money Laundering assessment (INCSR)
Malawi was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
Malawi is not a regional financial center. The main source of illegal profits in Malawi derives from public corruption. Malawi is currently addressing a major corruption scandal popularly known as “Cashgate” centering on the looting of government accounts by public officials through fraudulent transactions in the government’s computerized payments system. High ranking officials, including a former Minister of Justice, a former budget director, and a former Defense Force chief have been indicted in the scheme. The Financial Intelligence Unit (FIU) Monitoring and Analysis Manager was arrested in August 2015 and charged with money laundering, misuse of office, and breach of confidentiality as part of the same investigation.
Another significant source of illicit funds is the production and trade of cannabis sativa (Indian hemp), which is cultivated in some remote areas of the country. Anecdotal evidence indicates Malawi is a transshipment point for other forms of narcotics. Human trafficking, vehicle hijacking, wildlife trafficking, and fraud are also areas of concern.
Smuggling and the laundering of funds are exacerbated by porous borders with Mozambique, Zambia, and Tanzania. There are indications of trade-based money laundering, mostly through over- and under-invoicing. There are also cases of goods smuggled across the border; it is believed contraband smuggling generates proceeds that could be laundered through the financial system. Some of the trade-based money laundering is reportedly linked to Pakistan and India. Money/value transfer systems, such as hawala, are a concern. Malawi has a cash-based economy and there are usually few paper trails to follow in financial investigations.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 30
World Governance Indicator – Control of Corruption 24
Corruption is rife in Malawi and poses serious compliance risks to businesses investing in the country. All sectors of the economy suffer from widespread corruption, and large networks of clientelism and patronage exist. In addition, extensive bureaucracy and red tape provide a fertile environment for facilitation payments and bribery. Companies contend with corruption and bribery in almost all operations, from obtaining licenses to bidding on public contacts. Malawi has a comprehensive anti-corruption legal framework, yet enforcement is poor and officials sometimes engage in corruption with impunity. The Penal Code and the Corrupt Practices Act criminalize active and passive bribery, extortion and abuse of office, among other offenses, in both the public and the private sectors. Gifts are also criminalized, yet the practice is widespread. For further information - GAN Integrity Business Anti-Corruption Portal
Landlocked Malawi ranks among the world's most densely populated and least developed countries. The country’s economic performance has historically been constrained by policy inconsistency, macroeconomic instability, limited connectivity to the region and the world, and poor health and education outcomes that limit labour productivity. The economy is predominately agricultural with about 80% of the population living in rural areas. Agriculture accounts for about one-third of GDP and 90% of export revenues. The performance of the tobacco sector is key to short-term growth as tobacco accounts for more than half of exports.
The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries program. Between 2005 and 2009 Malawi’s government exhibited improved financial discipline under the guidance of Finance Minister Goodall GONDWE and signed a three-year IMF Poverty Reduction and Growth Facility worth $56 million. The government announced infrastructure projects that could yield improvements, such as a new oil pipeline for better fuel access, and the potential for a waterway link through Mozambican rivers to the ocean for better transportation options.
Since 2009, however, Malawi has experienced some setbacks, including a general shortage of foreign exchange, which has damaged its ability to pay for imports, and fuel shortages that hinder transportation and productivity. In October 2013, the African Development Bank, the IMF, several European countries, and the US indefinitely froze $150 million in direct budgetary support in response to a high level corruption scandal, called “Cashgate,” citing a lack of trust in the government’s financial management system and civil service. Most of the frozen donor funds — which accounted for 40% of the budget — have been channelled through non-governmental organizations in the country. The government has failed to address barriers to investment such as unreliable power, water shortages, poor telecommunications infrastructure, and the high costs of services. Investment had fallen continuously for several years, but rose 4 percentage points in 2014 to 17% of GDP.
The government faces many challenges, including developing a market economy, improving educational facilities, addressing environmental problems, dealing with HIV/AIDS, and satisfying foreign donors on anti-corruption efforts.
Agriculture - products:
tobacco, sugarcane, cotton, tea, corn, potatoes, cassava (manioc, tapioca), sorghum, pulses, groundnuts, Macadamia nuts; cattle, goats
tobacco, tea, sugar, sawmill products, cement, consumer goods
Exports - commodities:
tobacco 53%, tea, sugar, cotton, coffee, peanuts, wood products, apparel (2010 est.)
Exports - partners:
Belgium 15.8%, Zimbabwe 12%, India 6.9%, South Africa 6.2%, US 6%, Russia 5.6%, Germany 4.6% (2015)
Imports - commodities:
food, petroleum products, semi-manufactures, consumer goods, transportation equipment
Imports - partners:
South Africa 26.4%, China 16.7%, India 12%, Zambia 10.3%, Tanzania 6% (2015)
Investment Climate - US State Department
The Malawian government is eager to attract foreign direct investment. The Malawi Investment and Trade Center’s One Stop Center offers assistance on how to navigate relevant regulations and procedures In general there are adequate legal instruments to protect investors. Foreign investors are generally accorded national treatment.
Sugar cane production and processing, legumes, livestock production, dairy farming, oil seed processing, irrigation farming, and large scale commercial agriculture have the highest priority for investment in the agricultural sector. Independent power producers, particularly for hydropower and other renewable power sources, are encouraged.
Health science research projects need to be approved by the National Health Sciences Research Committee, which charges a 10% fee for its services.
Malawi has been largely free of political violence since gaining independence in 1964. Although divisions do exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that could be expected to lead to violent confrontation.
Although progress has been made addressing the issue of corruption, it continues to be viewed as a major obstacle to doing business in Malawi. Scarcity of skilled and semi-skilled labor is another serious impediment to business in Malawi and is most acute in occupational categories that include accountants and financial management personnel, economists, engineers, lawyers, IT, and medical/health personnel.
There is an established mediation process to promote agreements between parties in disputes before court proceedings start. Both foreign and domestic investors have access to Malawi's legal system, which functions fairly well and is generally unbiased but slow.
All investors have the right to establish, acquire, and dispose of interests in business enterprises. Foreigners require a business residence permit (BRP) to carry out any business activity in Malawi.
Government continues to undertake various reforms to ensure that no tax, labor, environment, health and safety, or other laws distort or impede investment. However, procedural delays continue to impede the business and investment approval process.
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