Forex bureaus likely vehicles for terrorist cash transit

A substantial amount of money could be channeled through forex bureaus to finance terrorist activities, according to a national risk assessment report on money laundering and terrorist financing, writes JEFF MBANGA.

The report, which profiles the institutions terrorists and other criminals might exploit to move money around, points to the managers running the forex bureaus as another source of worry.

The large number of forex bureaus in the country, and the competition created, is one of the reasons why terrorism financing has found a safe haven in this sector, the report explains.

“Bank of Uganda has found a number of forex bureaus have failed compliance tests due to the desire to increase their margins as the number of players has increased,” the report notes.

It adds: “As the competition gets stiffer, forex bureaus seek to make transactions easier so as to attract clients and, therefore, caution is sometimes thrown to the wind, exposing the country to money laundering risks. In view of the issues noted by the analysis, the overall threat of proceeds generated from or being laundered in this sector is high.”

There were 267 forex bureaus as at the end of 2016, compared to 280 a year earlier, according to figures from Bank of Uganda. The forex bureau industry, whose value accounts for about 16 per cent of the gross domestic product, remains volatile. 

In 2016, Bank of Uganda licensed 17 new forex bureaus, but terminated the licenses of 19 outlets on account of failure by the directors to meet the ongoing vetting requirements. At least 11 forex bureaus “voluntarily exited the sector” in the same year.

The risk assessment report, which is dated January 2017 and is not yet a public document, also “found that there was a thriving unlicensed foreign exchange market in Uganda, especially at or near the border crossing points.”

The report is a damning indictment on a sector that has flourished under low enforcement measures. It also shows the areas through which terrorists might channel funds to finance an attack on the country.

Uganda has faced its fair share of terrorist threats. In July 2010, in a grisly attack on football fans watching the World Cup final, terrorists detonated bombs at two different bars, claiming more than 80 lives and leaving dozens injured. The bomb blasts were linked to the Al-shabab terrorist group, whose nucleus is based in Somalia.  

The risk assessment report also looks at the nationalities of the people running the forex bureaus.

“…there is a strong presence of the Somali, Indian and Pakistani citizens in the forex bureau business. This link to some high-risk jurisdictions is considered a potential threat with regard to terrorism financing,” according to the report. Pakistan and Somalia are largely known to harbor pockets of terrorists.

Already, the Financial Action Task Force, a policy-making body that sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system, lists Uganda among only seven countries that are just a level above the red zone occupied by Iran and North Korea.

On this list of high-risk and non-cooperative countries, Uganda is in the company of volatile states such as Syria, Iraq and Yemen.

Patrick Ocailap, the deputy secretary to the treasury, and one of the technocrats pushing to improve Uganda’s rating, earlier said: “As we push forward to attaining modern and industrialized status as a country, we are obliged to avoid complacency and vulnerability but ensure that a clean, fraud and crime-free financial regime prevails in Uganda. We, so far, proved our commitment and have strong collaboration and support from key government institutions.”

Bank of Uganda, the regulator, has tried to clean up the industry. The bank reported that in 2016, it undertook 47 on-site examinations and 30 follow-up examinations of foreign exchange bureaus and money remitters.

“The major supervisory concerns related to lapses with regard to the internal controls over cash management, submission of large cash transaction reports, the identification and reporting of suspicious transactions, conducting proper customer due diligence for corporate clients and a limited understanding of the provisions of the Anti-Money Laundering Act, 2013 and Anti-Money Laundering Regulations, 2015,” the central bank noted.

The central bank has also held workshops to train forex bureaus on the significance of operating a transparent business.

jeff@observer.ug