Published on February 18, 2008
On February 15, 2008, the Reserve Bank of Zimbabwe (RBZ) had a 16-page tabloid sized pullout supplement in the Herald, Chronicle and the Zimbabwe Independent newspapers declaring victory. This was a follow up to the wide coverage (front page story and an interview with Gideon Gono) given by his newspaper, the Financial Gazette, a day earlier. On February 18, 2008, his online newspaper, newzimbabwe.com had a well strategically placed story entitled "Gono claims escaped arrest in December". The following day on the 19th, Gono continued with his victory celebration by causing a front-page article to appear in the Herald newspaper entitled "RBZ war against shady deals pays off".
The pullout supplement was claiming that the RBZ had been cleared of wrong doing in the Flatwater Investments case, in which the company and its directors were fined ZW$150 billion each, for illegally trading in foreign currency in the parallel market.
For those who did not see the wastage by Gideon Gono, the colourful supplement was entitled “When Facts Are Clear, Justice Will Always Prevail… RBZ Cleared of Wrong Doing In The Flatwater Case”. The pullout contained numerous cut and pasted of stories on the Flatwater case issues carried by the local print newspapers and selectively from online publications.
The preamble/introduction was entitled “Justice Well Served” and had points namely:
“In a case where some people sought to divert attention from the main issue of illegal foreign currency dealings, it became clear that the Reserve Bank as the complainant was now being attacked and persecuted, by some highly placed people in positions of authority and influence, calling for the arrest of the Governor of the Reserve Bank and his officials.
"This, the RBZ saw as a grand cover-up operation to divert the public, and convert attention from the real facts, culprits and issues on the ground.
“Indeed, commentators and scribes of all manner and form joined in the attacks based on falsehoods while the Governor and his staff maintained silent confidence and faith in the due process of our courts, knowing fully well that RINAMANYANGA HARIPUTIRWE forever.
“The Governor and his team now feel vindicated as facts now speak for themselves and justice has been done,” (EMPHASIS WAS AS PRINTED)
This was against a background of some of the Flatwater Investments 'runners' (Joseph Manjoro and Philemon Makuvise) having been fined ZW$100 billion for a similar offence. Former Member of Parliament, David Butau who is still on the run for a related offence, while Antony Hobwana and Royas Mazorodze are yet to be charged.
The finer details of what transpired will show that the RBZ must be held accountable through thorough investigation by a judicial commission of inquiry for fuelling the parallel forex market and trading in forex in the same market.
It is important to note that six Premier Banking Corporation/Premier Finance Group senior executives were unfairly, cruelly and vindictively relieved of their duties on the grounds of serious exchange control violations to do with the farm mechanisation programme when Premier was handling Flatwater funds from the RBZ.
The Harare Provincial Magistrate, Mishrod Guvamombe deliberately ignored a lot of glaring inconsistencies in the report presented by RBZ or he was ignorant of the procurement law and regulations of Zimbabwe for the State, local authorities and statutory bodies.
The provincial magistrate's conduct and statement of exonerating the RBZ that "the State erroneously applied for an order seeking (investigation and) arrest of RBZ officials in connection with the release of the money before it was proven in court that indeed there was a genuine contract" seem to confirm many people's fears that as a lowly paid civil servant, he was financially manipulated and blackmailed him by Gideon Gono. There was a talk during the trial period that the RBZ was prompted to undertake an audit of personal livelihood and assets of the magistrate and prosecutor after the prosecutor called for a full investigation of the RBZ. There is also a talk that the magistrate received a tractor and disc plough from the RBZ during the adjournment of the case before judgement was passed.
The RBZ prepared a report passionately defending Flatwater Investments. In the report, there is an attachment marked “Intelligence Report” and it contains paragraph of RBZ anger against the senior prosecutor when it said “The conduct of Mr. Tawanda Zvekare was beyond his role of a State prosecutor. He acted like an ambitious politician opposed to the Government mechanisation programme. He was actually assisting the defence to mitigate on behalf of the accused persons. His interest and overzealousness is beyond the means of having justice done, it could be that he is being used by some mercenaries to fight the Governor of the Reserve Bank or to protect the accused persons."
From the attachment cited above, it can noted that the RBZ now has its own ‘CIO’ or it recruited CIO officers to work for the central bank!
A copy of the report whose contents was part of the court submission by Mirirai Chiremba, RBZ's Divisional Head - Financial Intelligence Inspectorate and Evaluation (FIIE), in the criminal case against directors of Flatwater Investments, has been made available to this correspondent through the court.
The RBZ report claimed that Flatwater Investments specializes in imports and whose major activities have been the importation of grain and heavy equipment for private and public companies. Major contracts that were claimed to have been handled by Flatwater Investments since 2004 were from the following customers:
- National Foods and Victoria Foods – importation and supply of wheat for their milling operations;
- GMB – importation and supply of tarpaulins for covering grain;
- Delta Corporation – importation and supply of coke concentrate for beverage production;
- Zimbabwe Fertilizer Company – importation and supply of front-end loaders;
- Nestle Zimbabwe - importation and supply of coffee.
In a letter of introduction, Flatwater Investment claims to have got previous contracts with various institutions and corporate organisations. There is no sufficient evidence of business done attached to the letter of introduction, except such claims which the provincial magistrate described as coming from a well established company.
Besides these claims as presented in Flatwater letter of introduction, the claims were considered as facts by RBZ in the report. There are no attachments of purchase orders from the named Flatwater customers to provide proof about these so called major contracts.
Provisions of the Procurement Act
Section 31 provides the tendering requirements under the Procurement Act (Chapter 22:14) for the State Procurement Board; a ministry, department or other division of the government; local authority; and a statutory body. Some of them are:
an open invitation to suppliers to tender to be published in a newspaper; and
the invitation must contain – a comprehensive description of the goods/services to be supplied; the time within which the goods/services are to be supplied; the criteria by which the suppliers will be evaluated; the manner in which solicitation documents may be obtained and their price; and the deadline for the submission of tenders and the place where they are to be submitted.
Provisions of Section 34 of the Procurement Act provide that the procuring entity be satisfied with the supplier’s:
possession of the necessary professional and technical qualifications and competence, financial resources, equipment, facilities, personnel and experience to perform the contract; and
tax status, obligations and contributions/payments to NSSA are up-to-date.
Section 35 of the same principal act requires the procuring entity to keep a record of procurement proceedings and Section 36 provides for the public access to any document regulating the procedure in the procurement proceedings or the qualifications of suppliers. The record of the procurement proceedings must contain the names and addresses of the suppliers that participated in the pre-qualification proceedings; the suppliers that submitted tenders, bids or proposals; the price or the basis for determining the price and other related principal terms and conditions of the tender; the supplier who won the tender and the contract price; and a summary of the procuring entity’s evaluation and comparison of the tenders that were submitted.
The RBZ-Flatwater Relationship
How did the RBZ came to know Flatwater Investments and/or how Flatwater Investments came to know about the tender since it was not publicized? There was an attempt to answer this question in the RBZ report by the claim that “Following the call, under the Monetary Policy Statement, for capable suppliers of farming equipment to manufacture and sell their products to the RBZ, Flatwater Investments approached RBZ with its business profile, in late 2006, outlining the nature of their operations.”
Flatwater Investment's unsolicited letter of introduction is dated December 28, 2007 instead of December 28, 2006. Since this letter was made in December 2007, the error on the date escaped their attention, thus exposing the cover-up.
There was no due diligence conducted by the RBZ to establish where Flatwater Investments was to get its forex to pay for the products being ordered for. It is unprocedural not to have attached the terms and conditions of the offshore facilities to the procuring entity, unless it was a fishing expedition.
An unsolicited letter of introduction by Flatwater Investments was purportedly made on December 28, 2006, the first contract was signed 4 days later on a public holiday on January 1, 2007, the 1st delivery was made within 6 days of the signing of the contract on January 7, 2007. What a swift scandal!
A purported confirmation of the access to free funds was only made to the RBZ on January 31, 2007 through a one paragraph letter, a month after the contract had been signed.
The January 31 letter was addressed to Elias Musakwa and copied to a ‘Dr. O. Moyo’, who is believed to have been the link person between Gideon Gono and Flatwater. The letter was written by Flatwater’s CEO, T.J. Chivaviro, and it read "This letter serves to inform you that our company is in a position to support the importation of tractors through Farmer (Pvt) Ltd. We have an offshore facility at our disposal to the value of US$9 million. The terms and conditions of the facilities are available for your perusal…”
Even if the tender was informally awarded, the Report contains no tender details and specifications. There is no indication in the report of an attempt to invite more than one company to bid to supply the tractors and other agricultural mechanisation requirements. Procurement by government and quasi-government bodies are governed by the Procurement Act (Chapter 22:14) and the related procurement regulations.
An RBZ letter dated February 6, 2007 written by Elias Musakwa (Divisional Chief - Procurement, Logistics and Technical Services, a gospel musician and owner of Ngaavongwe Records, a Board member of the State-controlled Broadcasting Authority of Zimbabwe and ZANU PF candidate for the 2008 parliamentary elections) was addressed to Flatwater Investments confirming the purchase order of 60 tractors. The RBZ report claimed that the first delivery was made on January 7, 2007. Such a confirmation, ordinarily, must have been made before January 7, 2007. If a supplier has a copy of the written contract, why would a letter confirming that same contract be written?
The total payments made to Flatwater Investments Pvt Ltd under the farm mechanisation between the period February 7 – October 25, 2007 amounted to ZW$8,905,618,786,780. These was for the so called ‘Contracts No. 9, 10 and 11’ of 2007 valued at ZW$7,008,881,070,200 for 357 tractors; ZW$273,066,600,000 for 18 combine harvesters and ZW$2,067,767,478,826 for 250 planters, respectively.
Through a total of 15 payments, two banks were used – Premier Banking Corporation (ZW$5,789,789,000,000 – into account numbers ‘FLATW-01SET-ZWD0272, ‘FLATW-01SET-ZWD0156’ and ‘FLATW-01PCA-ZWD0156’) and Stanbic Bank (ZW$3,115,829,786,780 – into account number 014-006-895-5001).
On September 18, 2007, an unsolicited letter was written by a Ambarin Hassim-Tayob, the Business Development Executive of a South African company, VFS Wealth Managers (Pty) Ltd, to Flatwater Investments. It was entitled “Proposal to participate in the national mechanization program” and it read: “We would like to apply to the Reserve Bank of Zimbabwe for inclusion in the above exercise. We are proposing to commit free funds of up to US$10 million to the program on a revolving basis. We are a South African based wealth and portfolio management company and manage substantial funds on behalf of our clients. All the funds we manage are what are termed ‘free funds’ and have been sourced from various foreign non-Zimbabwean investors.
“We would like to use the Zimbabwean dollar proceeds generated from our participation in the program to invest in various companies listed on the Zimbabwe Stock Exchange, specifically Old Mutual. We intend to liquidate such investments by purchasing Old Mutual shares, which we will then seek to be transferred from the ZSE share register to share registers in South Africa and London for trading”.
The founding CEO of VFS Wealth Managers (Pty) Ltd is Victor Chando who is a former deputy general manager for international finance of Zimbank. VFS Wealth Managers was registered on January 8, 2007 and its incorporation number is 2007/000172/07. Victor was a 25% founding shareholder and director of Royal Bank Zimbabwe Ltd through his company Victory Financial Services (VFS). He also owned a company called Global Capital Holdings (GCH). He fled from Zimbabwe in 2004 during investigations into allegations of illegal forex dealings. He also used to run Travellers Money Transfer Agency (MTA) located in Edgars Stores.
VFS Wealth Managers made an unsolicited proposal that was NOT responded to by Flatwater and no subsequent correspondence and substantive agreement made between the two parties. One wonders how the letter from VFS Wealth Managers came to be in the hands of RBZ to be an attachment of its report when the RBZ is the complainant against Flatwater.
On the same day of receiving the unsolicited letter from VFS Wealth Managers, Flatwater Investments wrote to Premier Banking Corporation DUBIOUSLY seeking exchange control approval on transactions related to the farm mechanisation programme. The following day on September 19, 2007, Flatwater Investments wrote another letter to the RBZ Exchange Control Divisional Chief applying for exchange control approval on the farm mechanisation funds.
The substantive contents of the letters were the same as those in the VFS Wealth Managers proposal letter. Flatwater was now claiming that it had secured “free funds” from VFS Wealth Managers, which was not true. It is important to note that these letters were written and the exchange control approval was being sought at a time that Premier Banking Corporation was under investigation by RBZ for exchange control violations.
One can see that there was an attempt to control or manage the damage that had been caused from January until October 2007. There is no attached record of the exchange control approval having been granted.
Both VFS Wealth Managers and Flatwater were seeking to ‘externalize’ foreign currency. The letters written were simply a cover-up of what already been going on. The letters to both Premier Banking Corporation and RBZ seeking exchange control approval were based on a non-existent agreement with VFS Wealth Managers. At the time these letters were written, RBZ had made 13 payments to Flatwater through Premier Banking Corporation and the remainder through Stanbic Bank.
The Negligence of the Provincial Magistrate
After all the suspected secret meetings between the magistrate and RBZ with Flatwater directors, separately, during the period of the case’s adjournment, the magistrate has shown the whole world how compromised he was. The magistrate has absolute disregard of the provisions of the Procurement Act (Chapter 22:14) and the complicity of the RBZ for having simply threw public funds to the wind for possible personal enrichment by engaging a company without the capacity to raise the so called “free funds”.
A diligent magistrate should have said:
"The court finds the accused Flatwater Investments Pvt Ltd and its executive directors Tazviwana James Chivaviro and Nigel Marozhe guilty of illegally trading in forex after having used local currency valued at ZW$8,905,618,786,780 (i.e. more than ZW$8,9 trillion) after purporting to have access to or able to source free funds during the period January – October 2007.
The accused are guilty under the Exchange Control Act (Chapter 22:05) and Section 4 subsections (1) and (2) of the Exchange Control Regulations, 1996 S.I. I09 of 1996. The accused persons received local currency from the RBZ to import farm mechanization equipment and did NOT do so with the use of “free funds” as was required and expected.
In this case, the accused recruited people, who have since been convicted by a court of law for exchange control violations, to buy forex in the parallel market causing well documented damage to the economic activity in Zimbabwe , to pay the South African dealers in the required farm mechanisation equipment.
According to Section 2 of the Exchange Control Regulations, 1996 S.I. I09 of 1996, “free funds” are money which is lawfully held outside Zimbabwe by a Zimbabwean resident and which was acquired by him as the proceeds of any trade, business or other gainful occupation or activity carried on by him outside Zimbabwe.
Section 4 Subsection (3) of the same Regulations exempts, as an offence under Section 4 subsections (1) and (2), the acquisitions of foreign currency outside Zimbabwe by an individual who is a Zimbabwean resident, where the foreign currency is acquired with "free funds" which were available to him at the time of the acquisition.
The court also has found out hat there is prima facie evidence of serious violations of the Procurement Act (Chapter 22:14) and under the Prevention of Corruption Act against the RBZ. State funds were recklessly and negligently paid to Flatwater Investments without due diligence.
Since it is not the RBZ that is the accused, the court calls upon the State Procurement Board (SPB) to invoke Sections 46 and 48 of the Procurement Act (Chapter 22:14) for the purpose of preventing, investigating or detecting contraventions of the Procurement Act and other laws by the RBZ, which is a statutory board and the procuring entity under section 2 of the Procurement Act (Chapter 22:14).
It is morally repugnant that the RBZ is an authorised forex dealer under exchange control laws and regulations but aided and promoted the violations of exchange control regulations by a private company. The acquisition of the farm equipment is a noble programme to bolster the economy of the country but must have been done as provided for by the Exchange Control Act and Procurement Act.
The court also expresses its utter disappointment with the January 16, 2008 statement by the RBZ Governor Gideon Gono, which amounted to contempt of court, intimidation of court officials in their personal capacities and sub-judice when he said “On a separate but related note which touches on the credibility or otherwise of the Bank, the last two weeks have witnessed sustained negative comments on the Central Bank’s internal systems and corporate governance procedures. A grossly serious misrepresentation of facts and reality on the ground; infact, the opposite of the truth has been made against the Reserve Bank by those who are infact supposed to represent it and project facts as they stand and nothing else. The result of such shocking utterances and misrepresentations has been to shake the confidence of the banking public, the industry and some of our key stakeholders who know us better.”
Since the magistrate did not exercise his mind to ensure justice is done, there is now a call for an immediate review of the case by the High Court of Zimbabwe under the Criminal Procedure Act, which provides for the review of magistrates court cases by a higher court. the behaviour of the magistrate is highly discreditable!
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