A recent report has highlighted how some employees at Varun Beverages, the bottler responsible for Pepsi Co branded drinks like Mirinda, Pepsi Cola, Pepsi Lite and Sting, are alleged to have colluded to extract profit from the company. This scheme is based around the difference between the official and unofficial (black market) exchange rates for the local currency. This is something that affects a lot of businesses, and some even government entities.

For many years, formal businesses in Zimbabwe have been obliged by the government and the Reserve Bank of Zimbabwe (RBZ) to use the official exchange rate when conducting transactions between the United States Dollar (USD) and the local currency. As of writing, the local currency is the Zimbabwe Gold (ZiG), with the symbol ZWG, but prior to the 5th of April 2024 it was the Zimbabwean Dollar (ZWL). Frequently, the official rate is considerably lower, sometimes by as much as 50%, compared to the unofficial or black market rate. For instance, the official exchange rate currently stands at approximately 26 ZWG per 1 USD, whilst the black market rate is around 35 ZWG per 1 USD.

The Alleged Scheme Unveiled

The employees, who were allegedly part of the management team, are alleged to have colluded with street vendors. These vendors would sell packages of Varun drinks, which had a recommended retail price of US$7, for a lower price of US$6.50. Whilst this might appear to be a loss-making approach on the surface, it was in fact a method to drive higher sales volumes. The lower prices made these drinks more appealing to buyers, especially when compared to those sold by the company itself and its authorised sellers, who stuck to the recommended price of US$7.

They would then use the local currency they obtained on the black market at a discounted rate, before converting the sum into the company account at the official rate. As far as the company was concerned, no loss would be apparent, as they would still receive payment, but in electronic local currency (RTGS) rather than USD. This scheme is alleged to have provided the former employees with substantial profits, thanks to the arbitrage opportunity.

Discovery and Court Proceedings

The matter came to light during an audit, possibly prompted by a tip-off from members of the network, some of whom had become unhappy with the alleged main perpetrators, according to reports. It remains to be seen if the courts will rule that these actions constitute a crime. However, the legal outcome may depend on the specific manner in which the scheme was engineered. If the employees falsified records, they could potentially face charges of fraud.

According to court records, Elvis Muzvidziwa, 33, a former driver, and Vitalis Masikati, 32, a former assistant accountant, allegedly stole US$305,790 between June 1 and July 6, 2023, by instructing sales agents to sell beverages at US$6.50 instead of the official US$7. The company’s selling price was US$7 or equivalent in RTGS per case, but according to court papers, the accused persons devised a plan to sell at US$6.50 and then convert the USD to RTGS for deposit into company accounts.

The company alleges that the funds were manipulated by exploiting exchange rate differences, and that there were fake entries totaling ZWL $1.83 billion recorded in the company accounts. This fraud was discovered during an external audit by Crowe Chartered Accountants. Investigators also uncovered US$23,007 hidden in Muzvidziwa’s home, and US$76,804 at Masikati’s residence. The two are also said to have used stolen funds to purchase a Toyota Hiace van and a Toyota Axio, with a combined value of US$15,800.

Former salesperson Millicent Sithole testified that Muzvidziwa instructed her to sell beverages at discounted prices in US dollars. During cross-examination, the defence challenged Sithole’s evidence, asking for direct proof linking the accused to the alleged crime. Muzvidziwa and Masikati deny all the charges levelled against them. Four additional witnesses are expected to testify, providing further evidence. The trial is being presided over by Harare regional magistrate, Estere Chivasa.

A Widespread Issue

This alleged scheme is believed to be widespread across various companies, including government entities. It has been noted that some individuals who engage in similar activities are more astute. Instead of falsifying records, they will first buy products using companies related to them. These items are then sold immediately for USD after being bought in RTGS. They boost this scheme by using their influence from within the company they are defrauding by making sure that sales to companies related to them are prioritised. It remains a widespread practice, particularly as long as the disparity between official and unofficial exchange rates persists.