Despite recent reforms in the existing law, Uganda continues to be a high-risk theatre for money laundering, a report by the Finance Intelligence Authority (FIA) has said.
The Money Laundering and Terrorist Financing National Risk Assessment report tabled before cabinet on August 4, says the country suffers from a low money laundering combating ability.
The Anti-Money Laundering Act defines “money laundering” as the process of turning illegitimately obtained property into seemingly legitimate property and it includes concealing or disguising the nature, source, location, disposition or movement of the proceeds of crime and any activity which constitutes a crime.
The national risk assessment report says there are system flaws diminishing Uganda’s capacity to fight money laundering.
“The [money laundering tracking] system being relatively new, it is not yet implemented effectively. Capacity issues [combined with the risk of financial integrity issues] affect, to different degrees, the ability of stakeholders to prevent and repress money laundering and terrorist financing in an effective manner,” the report notes.
Sydney Asubo, the FIA executive director, told The Observer in an interview recently that: “the report was approved by cabinet in August but [is] not yet available to everyone.”
The FIA’s findings were compiled from open and classified information sources, including bank accounts and transactions in the financial services sector. In 2013, Uganda enacted the Anti-Money Laundering Act to fight drug trafficking, corruption, terrorism and tax evasion.
Between 2014 and 2016, only three money laundering related cases were taken to court out of those reported to the Crime Intelligence and Investigations Directorate, CIID, according to information at the Directorate of Public Prosecutions.
Most of the reported cases, however, are largely based on suspicion and do not got to full trial. In 2015, United Bank for Africa reported a Shs 5bn suspicious transaction.
Eighteen people were charged in the Anti-Corruption court in relation to this transaction. But the report notes that “the charge was withdrawn by the DPP for lack of adequate evidence to convict the accused.”
Other transactions involving billions of shillings were reported by KCB Bank (U) Ltd, Diamond Trust Bank and Post Bank Uganda Ltd. All investigations have stalled for over two years due to lack of evidence or inefficient system capacity.
In court, the DPP has also not secured a single conviction, the report says. In one ongoing court case, the accused, operating in a commercial bank, were supposed to honour transactions by their clients using debit cards. But they instead allegedly used their positions to break the law.
“It was discovered that they were performing transactions which could not have been on behalf of the customers as various cards were being used simultaneously in different jurisdictions,” the report notes.
In another case, the accused persons authorised withdrawals from accounts of people who were not the authorised signatories to these accounts. They then obtained the assistance of other individuals to assist in laundering the stolen funds.
For the third case, “the accused persons are said to have been selling shares of their mother company and remitting the funds to their personal accounts instead of the company account.”
BANK SECTOR LAXITY
Laxity within the banking sector to comply with the anti-money laundering law is one major loophole. That there are no administrative sanctions, provided under the Financial Institutions Act, 2004 and the Financial Institutions (Anti-Money Laundering) Regulation, 2010, to allow BoU to impose sanctions on financial institutions compounds the problem.
In one reported case, a private bank had not set up an automated system to monitor and report suspicious transactions as required by section 126 (2) [of the Financial Institutions Act and BOU circular referenced EDS.306.2 dated February 27, 2013.
Although this noncompliance was discovered in November 2015 by the central bank, it only penalised the defaulting bank with a fine of Shs 2,000,000, which was not commensurate with the value of money involved.
“The Mutual Evaluator Report (ESAAMLG) 2015, which reviewed the fines levied for noncompliance with the AML regulation were considered not commensurate with the risks posed by the weaknesses identified,” the report notes.
BOU also imposed low penalties on a bank which ignored its directive to freeze an account linked to money laundering.
“… the bank defied the BOU directive to freeze accounts belonging to M/S XX International and M/S Holdings Limited whose accounts were frozen in November 2012 – this was established in September 2015 - the bank was penalised Shs 20,000,000.”
Such low fines, which are usually levied quietly, seem to encourage noncompliance with the AML Act. Other material elements such as the widespread use of cash, the informal economy, the only very recently introduced national ID system and porous borders increase the country’s vulnerability.
The report’s threat analysis considered offences from two aspects. The first aspect was the domestic threat, and the external threat, which has a transnational character such as human and drug trafficking, smuggling and wildlife offences.
Real estate, lawyers, dealers in precious metals and stones and some types of financial institutions present the highest risk to money laundering.
The foreign countries’ threat analysis indicates that transactions emanating from Kenya, India, China, DRC and South Sudan pose a great risk to Uganda. The report indicates that the overall threat of terrorist financing is medium high.
“Terrorist threats are mainly external, emanating from the region… Of the terrorist groups operating from within the region - Allied Democratic Forces, the Lord’s Resistance Army, Al -Shabab, Boko Haram, Al-Qaeda and ISIL - the ones that pose the highest risk to Uganda are: the Al-Shabab, the ADF and the LRA...The volume of terrorist financing is estimated at $100 million-total for all terrorist groups in the region,” the report reads.
Terrorist funding is channelled through banks and invested in real estate. Main funding sources for terrorism include extortion, misuse of non-profit organisations, remittances, natural resources/wildlife crimes, ransoms, piracy and trade.