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Why was a US-based criminal buying 100 quadrillion ZimDollar notes?

July 30, 2019

 

A drug dealer who pleaded guilty in an American court to money laundering and to participating in a conspiracy to distribute illegal drugs (carfentanil and fentanyl) using the "dark web" used some of the proceeds to buy vast amounts of old Zimbabwe dollars. The drug dealer, Richard Castro, also agreed to forfeit more that USD4 Million in criminal proceeds. 

 

Some people have been left wondering why a drug dealer based in the US would buy vast quantities of old Zimbabwean notes. This is because Zimbabwe abandoned its old currency in 2009 after the hitting record hyperinflation in 2008. With hyperinflation at 79.6 billion percent month on month and printing ZWD100 trillion notes, the currency had become utterly useless. Zimbabweans had long abandoned the "useless" notes and adopted the US dollar and other foreign currencies before their government followed suit. 

 

Yet 10 years later, a criminal using the "dark web" is reported to have bought large amounts of these moribund Zimbabwean notes. What is the point, some have asked on social media, wondering what the motive might be.  

 

The answer lies in the money laundering scheme that Castro was using to clean proceeds of his criminal activities and the value attached to the old Zimbabwe dollar notes as commodities on the market. The fact that the moribund currency is traded as a commodity may not be known to many Zimbabweans. They might be surprised that the notes are not entirely useless. We will come back to this issue but first a definition of money laundering is a useful starting point to understand the interest in the Zimbabwean notes. 

 

Money-laundering

 

Money laundering refers to a process of disguising the illegal origins of financial profits of criminal activities. As stated by the global agency established to fight money laundering, the Financial Action Task Force, the process "enables the criminal to enjoy these profits without jeopardising their source”. Illegal drug dealers, corrupt people and other criminals seek to change the form of this money so that it cannot be traced to the illegal activities used to generate it. They seek legitimacy by engaging in normal formes of business. 

 

They do so, for example, by using the financial system, introducing dirty money and integrating it with legitimate funds so that it assumes the status of legitimate funds. They might bank the cash, buy real estate, jewellery, high-value supercars or other commodities which they then sell on. They might run a business, such as a butchery, night club, or supermarket but that business will be a mere front to conceal the real source of their illegal profits. Profits from the such transactions or businesses will look perfectly legitimate. 

 

This is why banks, real estate dealers, high value goods dealers, money transfer agencies have an important role as gatekeepers to detect and identify money launderers. When a bank suspects that a customer might be engaging in money laundering activities, it has a legal duty to report to law enforcement authorities. These are called suspicious activity reports (SARs). This is why banks and others are required to perform due diligence on each customer, understanding the source of their income so that if unusual trends appear, they can detect suspcious activities. 

 

Old Zimbabwe Dollar notes

 

So why old Zimbabwe dollar notes that have long been abandoned? Indeed, their mention or sight brings nightmares to many a Zimbabwean. Not so to others out there, though. As already hinted earlier, the old Zimbabwe dollar notes are actually valuable commodities on the market - not as currency, no, but as commodities. The currency produced by the hyper inflationary period is regarded as a rare phenomenon - something that happens once in a generation. They are regarded as collectors’ items just as other people collect old stamps. 

 

As time goes on, their vintage quality might even add more value. Some therefore see buying them as an investment. They fetch more on the market if they are new, clean and uncirculated. This why the US Department of Justice described the approximately 100 quadrillion Zimbabwe bank notes bought by Castro as "among other valuables". The old Zimbabwe Dollar notes are regarded as "valuables". To understand this, let's take a look at the figures.

 

The figures

 

A quick search on the Internet shows the rates at which the old Zimbabwe dollar notes are being traded. On one popular marketplace, ebAY, an uncirculated ZWD100 Trillion note is fetching £125 (that’s USD152.11 at today’s currency conversion rates). The ZWD500 Billion (uncirculated) is fetching £6.50 (USD7.91). The vast difference between the two notes is probably because of the rarity of the ZWD100 Trillion note, which may have had a more limited print. 

 

It’s also worth adding that it’s not just the hyperinflation notes that are fetching high value. An uncirculated ZWD20 printed in 1983 is fetching £47 on the same site. That translates to USD57.19 at today’s rates. An old and uncirculated 1983 ZWD2 note earns the seller £19.50 (USD23.73). 

 

With these figures in mind, it’s easy to see why a criminal might find it attractive to “ invest” in old Zimbabwe dollar notes, especially the ZWD100 Trillion note from the hyperinflation period. If buying large amounts, they can get them at a discount and later sell them on for a tidy profit, which is legitimate, far removed as it is from the original illegal drugs' money. 

 

Why it also matters to us

 

This helps us appreciate why Castro invested in 100 quadrillion Zimbabwe bank notes but the case also raises an important matter of interest in Zimbabwe’s efforts to fight corruption. Let me explain why the Zimbabwe Anti-Corruption Commission (ZACC) should take an interest in Castro matter. As we have observed, the most valuable notes are ones that have never circulated. Where would traders and criminals access these uncirculated notes? 

 

Possible sources might be individuals, banks and other entities that kept new notes back during the money-printing days. But prime candidates are more likely to be public officers and their associates who had access to the money-printing machines and the cash that was generated at the time. Indeed, it could be those who long afterwards had access to a stash of the currency that had become moribund but knew that it had a ready market out there.

 

Whatever happened, it should be a good idea for ZACC to look into the old Zimbabwe dollar notes and inquire into what really happened to them and if there were any people who might have gained illegal profits from trading in them on the international markets. A forensic audit would be a good start. It would be even worse if the current nond notes are also involved. The matter commands attention and investigation. 

 

WaMagaisa

 

wamagaisa@me.com  

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