Uganda is progressing towards being delisted from the roster of nations characterized by inadequate legislation and significant strategic shortcomings in combating money laundering and terrorism financing. Optimism surrounds the prospect of Uganda’s removal from the grey list during the Financial Action Task Force (FATF) meeting scheduled for February 2024.
In 2020, the FATF, an intergovernmental body established to combat money laundering, terrorism financing, and proliferation financing identified Uganda as one of the countries with weak laws and serious strategic deficiencies to counter money laundering, terrorism financing, and financing of proliferation.
The Finance Minister, Matia Kasaija then wrote to the FATF President to confirm the political commitment by the Government of Uganda to fully address the deficiencies in Uganda’s anti money laundering and countering the financing of terrorism (AML/CFT) regime.
FATF then put Uganda on the grey list meaning that the country was actively working with the FATF to address strategic deficiencies in its regimes to counter the vices. Uganda committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
Countries that refuse to collaborate with FATF and fail to address the deficiencies are identified as high-risk and put on black list, meaning that they are slapped with sanctions. The FATF then calls on all member countries and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing risks emanating from the black listed country.
Since Uganda showed political commitment, the Government of Uganda has since February 2020 been working with the FATF-ICRG and ESAAMLG in addressing its strategic AML/CFT deficiencies and has undertaken a number of policy and operational measures in line with its action plan.
Some of the policy and operational measures taken by Uganda include: Adopting a National AML/CFT Strategy; Developing and implementing risk-based supervision to Financial Institutions and Designated Non-Financial Businesses and Professions (DNFBPs); Enforcing Beneficial Ownership declaration obligations; Ensuring that competent authorities have timely access to accurate, basic, and beneficial ownership information for legal entities; Establishing and implementing policies and procedures for identifying, tracing, seizing, and confiscating proceeds and instrumentalities of crime; and implementing Targeted Financial Sanctions related to Proliferation Financing, among others.
According to the 2023 National Risk Assessment (NRA) Report on Money Laundering and Terrorism Financing in Uganda by the Financial Intelligence Authority (FIA), the sectors with high and medium-high threat ratings for money laundering from 2017 to 2021 include: banking, real estate, forex bureaus, casinos, insurance, money value transfer services, mobile money service providers, microfinance deposit taking institutions, microfinance institutions, saccos, and money lenders.
The Report shows that in the period between 2017 and 2020, obtaining money by false pretenses was the highest category reported under economic crimes with 44,388 cases. These cases manifest in terms of; double selling of land, Pyramid schemes, Black dollar scams, gold scams and obtaining goods/credit.
An example was a case in which a company by the names, Dunamiscoin Resources Limited defrauded over 2,500 people about UGX. 20 billion by promising each depositor a 40% interest rate which was increased to 50% on their deposits after 21 working days. The directors disappeared with the depositor’s money and the company ceased operations on December 2, 2019. The victims filed complaints to Uganda Police who initiated investigations leading to the recovery of Shs 47 million.
FIA supported the investigations by providing additional intelligence which led to the freezing and recovery of Shs 709 million.
Between 2017 and 2020, 860 cyber-fraud cases were detected and investigated resulting in a loss of over UGX. 197,534,500,050 (approx. USD 54,000) in which UGX. 59,610,000 (approx. USD 16,500) was recovered. During the period, 80 cases were prosecuted resulting in 28 convictions.
Between 2nd and 3rd October 2020, an alleged case of unauthorized access, electronic fraud, and theft of approximately Ugx. 11 billion occurred at Pegasus Technologies (a mobile money aggregator), Stanbic Bank, Bank of Africa, MTN Uganda and Airtel Uganda vide CID Hqtrs E 329/2020, E 332 /2020, E 330/2020, E 331/2020 and GEF 998/2020.
The Report reads that the matter came to light following an anonymous phone call from a staff of Bank of Africa to Pegasus Technologies that there were payments off their account at MTN Uganda and Airtel Uganda which they had not originated from the bank. Pegasus Technologies checked and established that they had not initiated the transactions either. Investigations were instituted and the following were revealed; 877 Airtel SIM cards were involved and received amounts totaling to Ugx. 5.026 billion. MTN Uganda realized a potential fraudulent disbursement amounting to approximately Ugx. 5.5 billion which was liquidated through MTN Mobile Money agents using 755 SIM cards.
Meanwhile, the Report says that the Banking sector has demonstrated increasing capacity to file suspicious transaction reports (STRS) to FIA. Banks alone filed 54.7% of the STRs from the period 2017 and 2020.
On matters tax crimes, the money laundering threat from tax crimes was rated high. Tax crimes rank as the second highest proceeds generating crimes after corruption. Between 2017 and 2020, 31,689 tax related cases were investigated, 233 cases were prosecuted, and 168 cases secured the conviction of 176 persons. Approximately UGX 255 billion (about $70.8 million) of evaded tax was recovered. During the same period, FIA disseminated 41 intelligence reports involving tax crimes to Uganda Revenue Authority for investigation.
The Uganda Police Annual Crime and Traffic Safety report 2020 says that Uganda lost money or property valued at Ugx. 11.5 trillion because of economic crimes that include; issuing false cheques, cybercrimes, embezzlement, causing financial loss, black dollar scams, bank frauds among others.
Since February 2020, Uganda has been working with the FATF in addressing its strategic deficiencies in combating money laundering.
Removing Uganda From Grey List
In its latest report, FATF announced that it has made determination that Uganda has substantially completed its action plan and warrants an on-site assessment to verify that the implementation of AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future.
“Uganda has made the following key reforms, including: (1) adopting a national AML/CFT strategy; (2) enhancing the use of MLA and maintaining statistics; (3) developing and implementing risk-based supervision of the financial and DNFBP sectors; (4) assessing the ML/TF risks related to legal persons and ensuring that competent authorities have timely access to accurate basic and beneficial ownership information; (5) pursuing ML investigations and prosecutions, applying ML charges consistent with the country’s risk profile and establishing procedures to trace and seize proceeds of crimes; (6) demonstrating an ability to conduct TF investigation and prosecution; (7) implementing PF-related TFS and developing an outreach and risk-based oversight plan to protect NPOs from TF abuse” FATF report reads in part.
What Uganda’s Removal from Finance Grey List Means For Banks And Foreign Investors
The Executive Director of the Financial Intelligence Authority (FIA), Samuel Were Wanders explains that placing Uganda on the grey list had impacted the country’s ability to attract foreign direct investment and resulted in delays in the transfer of funds to and from the country.
“When you are on the grey list, the financial transactions carried out in that country are delayed because of enhanced assessment of payments. Some countries even bounce payments because they fear the risk associated with that country,” he said.
Uganda has 25 licensed commercial banks, 4 Micro Deposit-taking Institutions and 5 Credit Institutions, all referred to as “Supervised Financial Institutions (SFIs). The sector is highly linked to the international financial system through correspondent banking institutions in trading partner countries and plays a pivotal role in facilitating domestic and international fund transfers Placement on the FATF’s grey list has severe repercussions for the country’s financial institutions. International banks and financial entities often become cautious when dealing with institutions from grey-listed countries. Correspondent banking relationships may be strained or severed altogether, making it challenging for Ugandan banks to conduct international transactions smoothly.
In addition to Ugandan financial institutions’ difficulty to access international financial markets, financial institutions may also face higher transaction costs when operating internationally.
The increased scrutiny and suspicion can also lead to a decline in foreign direct investment (FDI). Investors are likely to be hesitant to engage with financial institutions in a country that is perceived to have weaknesses in its financial regulatory frameworks.
Benefits Of Being Scrapped Off the Grey List
Removal from the grey list presents several benefits for Uganda’s financial institutions. Firstly, the restoration of confidence in the country’s financial system encourages international banks to reestablish or strengthen correspondent banking relationships. This facilitates smoother cross-border transactions and improves the overall efficiency of the financial sector.
It also boosts investor confidence because the perception of Uganda as a safer and more compliant jurisdiction may attract foreign investors, leading to an influx of capital and potentially stimulating economic growth.
Therefore, Uganda’s removal from the grey list is a major positive development for the country’s financial sector and foreign direct investment. It is a signal to the international community that Uganda has made significant progress in addressing its AML/CFT deficiencies.
This leads to a reduction in regulatory scrutiny, compliance costs, and difficulties in accessing international financial markets.