Uganda’s recently instituted Financial Intelligence Authority is investigating suspected money laundering, revenue diversion and tax evasion in the telecommunications sector, which could amount to $144 million in lost revenue.

The EastAfrican has learnt that fraudsters are using data codes to illegally terminate international mobile phone traffic (technically known as grey traffic) into local networks disguised as local traffic.

The traffic that goes through official international gateways is instead delivered through Sim-Boxes (racks containing hundreds of local numbers) and is received as local traffic.

The fraudsters end up paying only an eighth of the money they should have paid to the main voice operators in interconnection fees.

Memo

In a memo dated March 19 — a copy of which The EastAfrican has obtained — the executive director of the Financial Intelligence Authority, Sydney Asubo, issued an alert to his counterpart at the Uganda Communications Commission Godfrey Mutabazi — the agency that regulates the telecom sector — that over the past three years the country has lost up to $144 million accruing from inbound international telecoms traffic that is disguised as local traffic.

Besides the direct losses to the telcos, who receive only a fraction of what would have been due to them, authorities fear that the money generated through the racket could be used to compromise national security.

“The FIA has received reports of suspicious activities, pointing to possible fraud, tax evasion, money laundering and suspected terrorist financing via illegal international traffic, also known as ‘grey traffic’,” Mr Asubo wrote.

According to industry sources, local telcos are supposed to earn Ush800-Ush1,000 to terminate an international call and Ush90 to terminate a local one. The Sim-Box operators, often disguised as data vending companies, negotiate agreements under which the money is paid to them outside the country and they only pay the local termination fee.

In the process, the government loses 45 per cent in tax revenue, while the telcos lose more than 80 per cent of their revenue. It is estimated that these operators are terminating as many as four million minutes a month — representing a significant revenue leakage for both the industry and the government.

The FIA letter is copied to five local subsidiaries of multinational telecoms groups — MTN, Airtel, Africell (formerly Orange), Uganda Telecom Ltd (majority owned by Libya, with the Uganda government owning a 31 per cent stake) and new entrant Vodafone.

The letter is also copied to the ICT Minister, Internal Security Organisation and the External Security Organisation; as well as the Commissioner-General of the Uganda Revenue Authority.

Telecom companies Smile Communications, Smart Telecom and KT2 Telecom, did not receive the letter.