Uganda Under Tight Surveillance over Money Laundering, Terrorism Financing

by Christopher Kiiza
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Uganda has remained on the list of 26 countries put under increased monitoring (grey list) by the Financial Action Task Force (FATF) for moving slow to strengthen its financial systems and implement full measures to combat money laundering and terrorism financing.

The FATF is an intergovernmental policymaking body whose purpose is to establish international standards, and to develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism. It was formed in 1989 to set out measures to be taken in the fight against money laundering.

Money laundering refers to the act of concealing, disguising, converting, and moving illegally obtained funds, making them appear to be derived from clean sources. This process involves taking “dirty money,” which originates from criminal activities, and investing it in businesses or assets considered lawful. The objective is to obscure the origin of the funds. In Uganda, money launderers have focused on the real estate sector, acquiring properties such as land and apartments to legitimize the illicit funds and integrate them into the financial system. Other methods of cleansing the money have included investing in gambling establishments like casinos and purchasing high-end vehicles and boats.

In 2020, it was determined that Uganda had not done enough to strengthen its systems to combat money laundering and terrorism financing, and as a result, the country was placed on the grey list.

A total of 22 issues were identified, and the different timelines for different issues were given to Uganda to have them addressed. The earliest issue was to be addressed by May 2020, and the last one was by January 2022, but the deadline was adjusted forward by 4 months to cater for the impact of COVID-19 pandemic. This made the earliest item to be addressed by September 2020, and the last item by May 2022.

To address the issues, the government of Uganda started implementing a two year action plan because it had agreed to a high level political commitment to address the items under that action plan.

The Financial Intelligence Authority (FIA), the primary agency of the government of Uganda established by the Anti-Money Laundering Act, 2013 with the mandate to combat money laundering, countering terrorism financing and countering proliferation, had identified five sectors closely scrutinized by the authority, namely gambling, real estate, minerals, as well as legal and accounting firms. These named sectors were believed to have had the “dirty money” invested in there.

The Financial Intelligence Authority Executive Director, Sydney Asubo.

The country was unable to address all the issues in order to be scrapped off the grey list after the May 2022 deadline.

Due to Uganda’s show of compliance, however, the FATF has repeatedly pushed the country’s compliance deadline. The country has now been granted a four-month extension, shifting the deadline from June to October 2023.

Currently, Uganda has two issues still not addressed to combat money laundering and terrorism financing, out of the 22 which the country agreed with FATF to implement.

Uganda’s Financial Institutions have severally made alarms to the government to address the items raised by FATF so that the country is not put on the black list.

What does it mean to be on Grey List?

Nations collaborating with FATF face heightened surveillance, as they actively engage with the organization to rectify strategic shortcomings in their systems aimed at combating money laundering and the financing of terrorism.

When a country is put on the FATF’s increased monitoring list (grey list), it means that the country has agreed to promptly address the identified issues within an agreed-upon timeframe and will be subject to heightened surveillance.

Countries on the grey list with Uganda are 26, and they include; Albania, Barbados, Burkina Faso, Cameroon, Cayman Islands, Croatia, Democratic Republic of Congo, Gibraltar, Haiti, Jamaica, Jordan, Mali, Mozambique, Nigeria, Panama, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Turkey, Uganda, United Arab Emirates, Vietnam, and Yemen.

Countries on the grey list are not slapped with sanctions, unlike those on black list. Currently, there are three countries on the black list, and they include; North Korea, Iran, and Myanmar.

The FATF assessment is done every four months, meaning that every four months countries are reviewed. After the review, some are added to the list while others are removed.

Impact of Being on Grey List

Being placed on the grey list is a matter of great concern for Uganda for several reasons. Firstly, it will lead to heightened scrutiny by international systems on transactions originating from or passing through Uganda’s financial system, including cash transactions. Consequently, business deals may be delayed, increasing turnaround time and transaction costs.

Secondly, there is a risk of Uganda being removed from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a critical global financial network facilitating swift cross-border money transfers. Such an outcome would have severe repercussions on the economy, hindering international trade and transactions in major currencies like the dollar and euro.

Thirdly, the affiliation of major financial institutions such as the IMF and World Bank with the Financial Action Task Force (FATF) as observers could complicate Uganda’s access to international lending instruments. Even without economic sanctions in place, the stringent due diligence requirements for obtaining loans from these institutions may make such borrowing less appealing due to stricter conditions.

Uganda being placed on the grey list serves as a signal to the global community that certain concerns have been recognized in the country. The relief bit of it, however, is that the country is actively taking measures to resolve those issues. This way, any international investor seeking a destination for their investment is informed about the current status of that country.

The big problem will be when the country doesn’t fully address the issues on the grey list which could eventually compel FATF to put Uganda on the black list.

To effectively combat money laundering, Uganda must take assertive actions that heavily rely on genuine and demonstrated political will. The implications of remaining on the grey list are significant for Ugandans, as it jeopardizes the country’s financial reputation and potential economic opportunities.

Impact of Being on Black List

The consequences of a blacklisted country is that it affects that country’s financial institutions to conduct international financial transactions, and international business in general.

Commercial banks’ foreign operations are crippled by the sanctions that prohibit other foreign financial institutions from dealing with the financial institutions of the blacklisted country.

Similarly, the sanctioned country’s foreign investments are adversely affected since foreign investors will shy away from investing in a country that has been blacklisted by FATF.

However, it should be noted that there are other Bodies, other than the FATF that maintain their own lists, for instance; the European Union and the United Kingdom.

The EU maintains a list of high risk third countries (countries outside the European Union). Here, the EU looks at countries outside the bloc which it considers to be high risk.

It is also worth noting that the EU and UK don’t consider a grey list, meaning that if a country is on the FATF grey list, that country automatically is put on the EU and UK black list. This means that the consequences of being on the EU and UK black list are the same as the grey list by the FATF.

The Government of Uganda is undertaking enormous efforts to have Uganda removed from the grey list.

The Minister of Finance is the line Minister responsible for FATF issues, and once the decision to grey list Uganda was communicated in 2020, the Minister of Finance formed a Task Force to ensure that all the issues on the action plan are addressed to get Uganda off the grey list.

The Task Force is composed of various Government Ministries, Departments and Agencies (MDAs). They include; Ministry of Finance, Ministry of Internal Affairs, Ministry of Justice and Constitution Affairs, Office of the President and Ministry of Foreign Affairs.

Others include; the Financial Intelligence Authority, Bank of Uganda, Insurance Regulatory Authority, Uganda Microfinance Regulatory Authority, Capital Markets Authority, Inspectorate of Government, Uganda Police Force, Uganda Revenue Authority, NGO Bureau, Office of the DPP, Uganda Registration Services Bureau, Uganda Bankers Association, Uganda Insurers Association, the National Rotaries and Gaming Regulatory Board and Uganda Wildlife Authority.

Money Laundering And Terrorism Financing National Risk Assessment Report – May 2023

The risk assessment revealed that domestically, the most proceeds-generating predicate offences are: corruption, fraud (that includes; cybercrime, obtaining money by false pretense, visa fraud, identity theft, and pyramid schemes.), tax crimes (tax evasion and fraud), and counterfeiting of goods. On the other hand, at external/trans-national level (committed outside of Uganda and the proceeds laundered in or through Uganda), the most proceed-generating predicate offences were: drug trafficking, human trafficking, smuggling, wildlife offences and tax evasion.

In addition, the findings of the assessment indicate that terrorist threats emanate mainly from external sources within the region.

“Overall ML [money laundering] threat for Uganda is assessed as Medium-High while overall ML vulnerability is assessed as Medium. The money laundering risk level for the country was determined by mapping the ML Threat ratings and ML vulnerability ratings on a risk matrix. Using this method based on the World Bank’s tool, the ML risk level for Uganda is determined to be Medium-High. While the overall terrorism financing (TF) risk is rated Medium based on the medium overall threat and low overall vulnerability,” the report reads in part.

Financial Intelligence Authority

The Financial Intelligence Authority (FIA) is the primary agency of the government of Uganda established by the Anti-Money Laundering Act, 2013 with the mandate to combat money laundering, countering terrorism financing and countering proliferation.

FIA is the central Agency for receiving Suspicious Transactions Reports (STRs), Large Cash Transactions Reports (LCTRs) and cross border movement of cash and Bearer Negotiable Instruments (BNI) reports.

The FIA analyses information from the above reports, and coordinates with other competent authorities, Law enforcement agencies and other stakeholders.

The FIA disseminates Financial Intelligence reports to appropriate Law Enforcement Agencies (LEAs) for further investigations and prosecution.

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