Minister of Finance Sosten Gwengwe Tuesday told Parliament that government, through offices of Attorney General (AG) and Director of Public Prosecutions (DPP), has moved to institute criminal investigations into activities that led to the liquidation of investment company Alliance Capital.
The Commercial Division of the High Court of Malawi on Friday ordered that the firm be wound up and liquidated after falling short being a sound financial institution to conduct business in the country.
Several public and private institutions and individuals reportedly invested with the firm.
Gwengwe said the investigation would help them ensure that if there are any cases that are criminal in nature, justice should be served.
“But, as the House knows, once this company is liquidated, whatever will be the salvages from the process will have to be distributed and compensated to those that suffered loss, starting with individuals,” Gwengwe said.
He was commenting on a matter which Member of Parliament (MP) for Dedza Central Joshua Malango brought in the chamber, asking government to explain the status of the firm and the way forward.
The minister also suggested that the House should institute a special committee of “competent” lawmakers to conduct an inquiry into what happened to the company.
“Parliament should take interest [in the matter] and go down and find out exactly what happened at the company. As the AG and the DPP continue with their work on the matter, let us give the MPs a chance to also dig deep,” Gwengwe said.
He also acknowledged that several sectors and individuals have been affected by the mess at the institution.
Minister of Trade and Industry Mark Katsonga Phiri also declared that he is one of the individuals that have been affected by the liquidation of Alliance Capital.
Katsonga alleged that the company lost its assets because board members were issuing loans to businesses with no solid grounds and foundations.
Also contributing to deliberations on the matter, Lilongwe South MP Peter Dimba, who is also chairperson for the Legal Affairs Committee of Parliament, raised suspicions of money laundering in the firm’s transactions amid reports that some individuals were getting loans without collateral.
He cited allegations— which we have not independently confirmed— that one borrower managed to access up to K7 billion from the firm as a clear sign of money laundering apparently because the borrower was supposed to provide collateral worth more than that amount.
The judgement that declared the liquidation of Alliance Capital cited negligence and disregard of its legal mandate as some elements that drove the company into huge debts and failure to honour mature investments.
Registrar of Financial Institutions, Reserve Bank of Malawi Governor Wilson Banda, applied for the liquidation of the investment firm following a series of complaints lodged to the central bank after clients failed to redeem their matured investments.
The judgement further indicates that the company diverted from being a portfolio manager to being a lender to the point that some people who already had loans with it failed to settle their loans.
It also states that instead of investing in government instruments and other reliable investments, the company resorted to lending money to individuals, in some instances its own directors and some people who already owed it money without the approval of its clients.
“In one of the cases, the company granted a facility to a company owned by one of its directors without disclosing this conflict of interest to the clients whose funds were used for the facility,” the judgement reads.
The judgement further says one company entered into an agreement with Alliance Capital to be given a loan of K5 billion but that there was no indication of the exact amount disbursed and terms of conditions of the facility and exact details of the bank account.
“There were some transactions which did not make any business sense in the light of the financial difficulties the company was facing,” the judgement says.
Alliance Capital was incorporated as a private limited company on August 31 in 2004 as Alliance Investment Limited and changed its name to Alliance Capital Limited on September 30 2006.
After it became known that the Malawi Electoral Commission was failing to recoup its K690 million which the electoral body had invested with the firm, the Public Accounts of Committee of Parliament called for a forensic audit at Alliance Capital.
It later transpired that many more public and private institutions, apart from individuals, had lost their investments with the firm.
The chaos has also cast a spotlight on RBM’s role in regulating financial institutions in the country and whether the central bank might have slept on the job in the whole mess.