The trillion-kwacha question: what Malawi's Finance Bank saga reveals about the limits of restitution

There is a particular kind of legal case that outlives the institution at its centre, and Malawi's long-running dispute over Finance Bank is one of them.

The bank itself has not existed in any meaningful sense since January 2006. Yet twenty years on, the machinery of the state and the ghost of a defunct lender remain locked in a courtroom in Blantyre, arguing not over whether an injustice occurred — the Supreme Court settled that much in February — but over how injustice, once established, should be priced.

The numbers involved are, by any measure, extraordinary.

Finance Bank's liquidators are seeking $284 million: $150 million for what they characterise as a violation of the bank's constitutional rights, and a further $134 million for lost profits and lost business.

Converted into local currency, the claim approaches a trillion kwacha, a figure so large relative to the Malawian economy that the Attorney General, Frank Mbeta, felt it necessary to simply say the number aloud in court, as though its scale were argument enough.

Underneath the theatre of cross-examination — five hours of it, before assistant registrar Ibrahim Hussein — sits a more interesting question than the one being litigated.

Finance Bank operated exclusively in kwacha: it took deposits in kwacha, it lent in kwacha, and its own historical accounts, dutifully produced in evidence, are denominated in kwacha throughout.

Its claim for compensation, however, arrives in dollars.

The State's lawyers pressed this point precisely because it exposes something structural about how compensation claims against African states tend to be constructed once foreign capital and offshore advisers enter the picture: the currency of the wrong is rarely the currency of the remedy.

The bank's witnesses did not dispute the discrepancy so much as reframe it.

Nkhuzo Kuwani, a financial adviser to the Zambia-based Mahtani Group, which controlled Finance Bank, argued that the dollar valuation reflects opportunity cost rather than historical fact: what the bank would have earned had it been permitted to continue operating, priced in the currency in which its ultimate investors had originally committed capital. It is a coherent enough theory of damages in the abstract.

Whether a Malawian court, assessing harm done to a Malawian financial institution regulated under Malawian law, ought to accept a dollar-denominated theory of what never actually happened is a rather different matter, and one that goes well beyond forensic accounting into questions of sovereignty and whose economic assumptions get to govern restitution.

There is also, underneath the numbers, an uncomfortable institutional history that neither side's submissions quite reckon with.

The Reserve Bank of Malawi revoked Finance Bank's licence in 2005 over allegations that the bank had operated ghost accounts to externalise foreign currency — serious claims, later found by the Supreme Court to have been improperly grounded as the basis for revocation, but not necessarily claims that vindicate the bank's conduct so much as its treatment.

And in a detail that has attracted less attention than it perhaps deserves, the RBM granted a licence to a new bank, New Finance Bank, in 2013 — with Rajan Mahtani, the same principal behind the defunct institution, once again a principal shareholder.

A banking sector regulator that revokes a licence over allegations of currency externalisation, loses the resulting legal battle over process, and then licenses the same beneficial owner to run a new bank eight years later, has a case to answer about the coherence of its own regulatory philosophy — whatever the merits of the compensation claim now before the courts.

None of this resolves the currency question, or the more basic question of what a fair settlement looks like for a bank that has been legally dead for two decades.

But it is worth noting that the case has now outlasted the institutions that produced it in their original form, and will likely be decided by people who had no hand in the events of 2005.

That is not unusual for restitution cases the world over. It is, however, a reminder that when states get regulatory decisions wrong, the bill — however it is eventually denominated — tends to be paid by taxpayers who had no say in either the original wrong or the compensation now being negotiated in their name.