How minerals are smuggled out of Uganda

Uganda’s mining sector holds huge economic potential, but persistent governance and financial challenges continue to undermine its growth.

Despite being rich in gold, copper, tin, cobalt and rare earth elements, the sector’s contribution to the national economy has plummeted—from 30 per cent of GDP in the 1950s to just 2.2 per cent today.

One of the biggest threats to the industry is illicit financial flows (IFFs), which drain billions in revenue through tax evasion, smuggling, corruption and trade misinvoicing. These illegal practices weaken government revenue collection and create loopholes that allow multinational corporations and criminal networks to profit at Uganda’s expense.

A January 2025 report titled Uganda’s Mining Legal Regime: Addressing Illicit Financial Flows (IFFs) Risks and Revenue Loss in the Mineral Supply Chain, published by Global Financial Integrity (GFI) and the Advocates Coalition for Development and Environment (ACODE), shines a bright light on the extent of these financial losses and the weaknesses that enable them.

The report outlines how IFFs occur at every stage of the mineral supply chain—from extraction and processing to trade and export.

“With over 90 per cent of mining operations classified as artisanal and small-scale mining (ASM), Uganda’s informal sector provides fertile ground for smuggling, tax avoidance and regulatory loopholes. Large-scale mining firms also take advantage of weak oversight by underreporting production, misclassifying mineral exports, and manipulating invoices to shift profits abroad,” the report notes.

The financial toll is staggering. According to the United Nations Conference on Trade and Development (UNCTAD), Africa loses an estimated $88.6 billion annually to illicit financial flows, with a significant portion linked to the extractive sector. Uganda is no exception. The report reveals that between 2014 and 2018, the country lost approximately $652 million due to trade misinvoicing and tax incentives exploited by multinational corporations.

In the 2019/20 financial year, over 10,000 tonnes of vermiculite worth Shs 8.3 billion were exported without permits, leading to Shs 102.7 million in lost tax revenue. These figures highlight the urgent need for stronger regulations and enforcement to ensure Uganda benefits from its mineral wealth rather than losing billions to illegal financial activities.

HOW MUCH REVENUE DOES UGANDA LOSE FROM ILLICIT MINING?

Illicit financial flows in Uganda’s mining sector manifest in tax evasion, trade misinvoicing, smuggling and corruption, allowing significant sums of money to leave the country without government oversight. According to the United Nations Conference on Trade and Development (UNCTAD), Africa loses approximately $88.6 billion annually to IFFs, with a significant portion linked to the extractive sector.

In Uganda, these losses undermine domestic revenue mobilization, weaken economic development efforts, and exacerbate governance challenges, according to the report. Understanding the factors enabling IFFs and identifying ways to strengthen the legal framework is essential to reversing these trends and ensuring that Uganda’s mineral wealth contributes to sustainable national development.

HOW DO MULTINATIONAL COMPANIES EXPLOIT UGANDA’S MINING SECTOR?

The report by GFI and ACODE defines illicit financial flows as illegal movements of money across borders that result from tax evasion, corruption, trade misinvoicing, and smuggling. Within Uganda’s mining sector, these activities allow companies and individuals to shift wealth offshore, reducing the country’s ability to generate revenue from its mineral resources. The study identifies multiple ways in which IFFs occur throughout the mineral supply chain.

“In the early stages of exploration and extraction, many artisanal and small-scale miners operate informally, outside the legal framework, making it difficult for authorities to regulate production and enforce tax collection. At the processing and trade level, companies frequently underreport production volumes, misclassify minerals, and manipulate invoices to evade taxes. During export, smuggling and misdeclaration of mineral values allow illicit outflows of wealth, preventing the government from collecting the full revenue it is due,” the report reveals.

One of the most glaring examples of IFFs in Uganda’s mining sector is gold smuggling. The report reveals that a significant portion of Uganda’s gold is extracted informally and sold through unofficial channels, bypassing regulatory oversight. Between 2014 and 2018, Uganda reportedly lost $652 million due to trade misinvoicing and tax incentives exploited by multinational mining firms.

“In another case, during the 2019/20 financial year, over 10,000 tonnes of vermiculite worth Shs 8.3 billion were exported without proper permits, resulting in a tax revenue loss of Shs 102.7 million. These figures illustrate the scale of the challenge and the urgency of addressing the loopholes in Uganda’s legal and regulatory framework.”

HOW ARE MINERALS SMUGGLED OUT OF UGANDA?

The report underscores that a key driver of IFFs in Uganda is the largely informal nature of the mining sector. Over 90 per cent of mining operations fall under artisanal and small-scale mining (ASM), where miners operate without licenses or documentation.

The absence of formalization programs makes it easy for illicit actors to exploit the system, smuggling minerals out of the country without paying taxes or adhering to environmental regulations. Without proper oversight, large-scale mining companies also underreport production levels, further reducing taxable revenue.

WHAT ARE THE CHALLENGES OF ENFORCING MINING LAWS IN UGANDA?

Weak enforcement of legal frameworks is another significant enabler of illicit financial flows. While Uganda has robust mining laws, corruption and a lack of resources prevent effective implementation.

Regulatory agencies such as the Directorate of Geological Survey and Mines (DGSM) and the Uganda Revenue Authority (URA) often lack the technical and financial capacity to monitor compliance, making it easy for illegal operators to evade detection. Penalties for non-compliance are weak, failing to deter mining companies from engaging in fraudulent practices. Political interference further exacerbates the problem, as influential individuals protect illicit activities within the sector.

The concealment of beneficial ownership also facilitates IFFs. Many mining companies operate under anonymous shell corporations, making it difficult to trace the true owners of mineral enterprises. This opacity allows firms to shift profits to offshore tax havens, evading taxes in Uganda.

By registering under multiple business names, companies can also circumvent ownership concentration restrictions, acquiring multiple licenses illegally.

Another significant factor contributing to illicit financial flows is the abuse of tax incentives and exemptions. The report highlights how some multinational corporations exploit Uganda’s tax laws to shift profits abroad, using double taxation treaties and transfer pricing strategies to minimize tax obligations. Between 2006 and 2015, trade misinvoicing accounted for approximately 18 per cent of Uganda’s total trade, resulting in potential revenue losses exceeding $4.9 billion.

The existence of trade-free zones and special economic zones (SEZs) has also been exploited to facilitate illicit trade. Some mining firms underreport exports, manipulate transfer pricing, and smuggle minerals under the guise of tax-free exemptions granted in these zones.

The lack of a comprehensive mineral traceability system further compounds the problem, allowing illegally mined minerals to mix with legally extracted ones, making it difficult to distinguish their origins. Gold refiners, for example, operate under weak Know Your Customer (KYC) requirements, which fail to track minerals from source mines to end buyers, enabling money laundering within the sector.

WHAT LAWS REGULATE MINING IN UGANDA?

Uganda has a well-established legal framework governing the mining sector, including the Mining and Minerals Act, the Income Tax Act, the Anti-Money Laundering Act, the Public Finance Management Act, and the East African Community Customs Management Act.

These laws regulate mineral exploration, taxation, financial reporting, and anti-corruption measures. Despite these legal provisions, enforcement remains a challenge due to weak institutional capacity and insufficient inter-agency coordination.

Delays in implementing mineral traceability systems, regulatory loopholes regarding processed versus unprocessed minerals, and the abuse of special economic zones continue to facilitate illicit financial flows.

STRENGTHENING UGANDA’S MINING SECTOR

The report recommends several policy interventions to curb illicit financial flows and strengthen Uganda’s mining sector. Increasing funding for regulatory agencies and enhancing enforcement mechanisms through regular audits and inspections would improve compliance. Public disclosure of mining contracts, ownership structures, and export data would enhance transparency and accountability.

Implementing a robust mineral traceability system would help prevent the entry of illegally mined resources into the formal supply chain, ensuring that only legally sourced minerals are traded and taxed appropriately.

Reforming tax policies is essential to closing loopholes that allow for trade mis-invoicing and profit shifting. A review of tax incentives to ensure that they benefit the country rather than multinational corporations would help Uganda retain more revenue from its mineral sector.

Stronger financial regulations targeting abusive transfer pricing and misinvoicing practices would further reduce revenue losses. Regional and international cooperation is also critical in addressing IFFs. Strengthening cross-border enforcement mechanisms and fostering partnerships with neighbouring countries to track mineral movements would help combat smuggling.

Engagement with global initiatives such as the Extractive Industries Transparency Initiative (EITI) would reinforce Uganda’s commitment to transparency and accountability in the mining sector.

CONCLUSION

Illicit financial flows continue to undermine Uganda’s ability to maximize its mineral wealth for national development. While the country has a strong legal framework, weaknesses in enforcement, corruption, and policy loopholes allow illicit activities to persist. Strengthening governance, enhancing regulatory capacity, and increasing transparency in the mining sector are essential steps toward reducing IFFs and ensuring that Uganda’s natural resources contribute to sustainable economic growth.

The insights provided in the report by GFI and ACODE emphasize the urgency of addressing these challenges, offering a roadmap for policymakers to enhance the country’s mining governance and financial integrity.