Funding terror? The flip side of forex boom

The huge amounts of money handled by private forex bureaus could be a threat to the country and the region if foreign exchange rules are disregarded, the Bank of Uganda has warned.

In a meeting held in Kampala by forex bureaus and money remittance operators on April 30, the executive director of bank supervision at the Bank of Uganda, Justine Bagyenda, raised the alarm on possible money laundering and financial terrorism.

She said the laid-down guidelines should be adhered to as the country awaits the enactment of the Anti Money Laundering Law.

A survey by the EastAfrican reveals that many operators are not complying with Know Your Customer requirements and procedures drafted by the central bank.

These procedures were issued to all forex bureaus and money remitters in August 2003 to assist in combating the vice in Uganda’s financial sector.

Said Ms Bagyenda: “For instance, some of you are not undertaking due diligence to ensure that customer identification details for large transactions are provided.”

She added: “We have noted that 90 per cent of the operators do not capture the sources of and the purposes of foreign exchange.

“This is very dangerous as it is a possible avenue for money laundering. You should comply with the law on declaring sources and purposes of foreign exchange, and the ‘know your customer’ measures that are crucial to turn down illegally-acquired funds and prevent possible financing terrorism.”

Foreign exchange regulations require dealers to report to the Bank of Uganda the details of any individual selling amounts in excess of $5,000.

Privately run foreign currency exchange bureaus and money remittance outlets handled 30 percent of the net foreign exchange transactions in Uganda in 2008, but the regulators are concerned by increased laxity.

The Bank of Uganda says the forex bureau and money remittance sector has remained largely buoyant, with a total of 122 forex bureaus and 75 money remittance outlets.

But a few were not following operational procedures regarding identification of clients, leaving the country open to money laundering.

Ms Bagyenda said an increase was reported in the inflows and outflows of licensed money remittances in the country that stood at the equivalent of $226.01 million in inflows and $104.20 million in outflows, at the close of December 2008.

This was a tremendous improvement compared with $99.44 million and $40.59 million recorded inflows and outflows during 2007.

Statistics from the bank show that total purchases in the forex bureaus market increased from $1.2 billion at the end of December 2007 to $1.5 billion at the end of December 2008, while total sales increased from $1.3 billion to $1.6 billion over the same period.