The International Monetary Fund (IMF) has told Bank of Uganda (BoU) to strengthen the fight against money laundering if the country is to get off the Financial Action Task Force grey list.
In June, the Financial Action Task Force noted that Uganda would remain on the grey list of countries that do not take full measures to combat money laundering and “terrorism” financing after government failed to meet the May deadline, in which it had been expected to put in place measures to fight money laundering.
In details published in the Uganda Fourth Policy Review, IMF noted that whereas government with the support of the Fund Technical Assistance, had started developing and implementing anti-money laundering risk-based supervision tools for banks, optimising supervision had remained a challenge due to resource constraints.
“Tools for foreign exchange bureaus and money remittance sectors have been rolled out but effective supervision requires optimising supervisory resources and coordination, which are currently a challenge due to resource constraints,” IMF said, noting that the Financial Action Task Force continues to maintain Uganda on the grey list after the country’s agreed action plan fully expired in May last year.
The IMF further said BoU should expedite measures to complete the remaining items under the country’s action plan as agreed to exit the grey list.
The measures will include formulation of policies and procedures to guide the implementation of supervisory sanctioning power as well as creating channels through which non-compliant financial institutions can be handled.
The Financial Action Task Force, which has repeatedly pushed Uganda’s compliance deadline, in June granted the country a four-month extension to October to meet requirements under the action plan, failure of which the country would possibly be placed on the blacklist which features Myanmar, Iran, and North Korea.
Therefore, the IMF noted there was need for Uganda to continue implementing requirements under the action plan through which strategic deficiencies such as ensuring that competent authorities have timely access to accurate basic and beneficial ownership information for legal entities, could be addressed.
However, responding to the issues, Finance Minister Matia Kasaija and Bank of Uganda Director Research Adam Mugume, said risk-based tools for banks had been successfully rolled out in 2022 while similar tools for forex bureaus and money remitters had been rolled out in May this year.
“This will guide our [anti-money laundering] onsite inspections on banks, forex bureaus and money remitters on a risk-based approach,” Kasaija and Dr Mugume wrote in response to the concerns.
Government also indicated that already seven onsite inspections on higher risk banks had been conducted ensuring that guidelines such as customer due diligence, suspicious transactions reporting, targeted financial sanctions and risk assessment are properly followed.
Trade-based laundering common
Trade-based money laundering is the leading form of Illicit Financial Flows through which proceeds of crime are legitimised, according to a new report.
The report by Advocates Coalition for Development and Environment (Acode), indicates that trade-based money laundering continues to be one of the most sophisticated methods of illicit financial flows, given that it is hard to detect by financial institutions and customs authorities.
The report, jointly published by Acode and Global Financial Integrity, also notes that trade-based money laundering largely involves falsifying imports and exports data through over or under-billing, multiple billing, over or under shipping, and quality misrepresentation.
The Financial Action Task Force defines trade-based money laundering as concealing proceeds of crime and moving value through trade transactions to legitimise their illicit origins.
The vice has mostly been confused with trade-related offences such as fraud and smuggling.
In notes published in the report, experts said trade-based money laundering is recognised as one of the three main methods through which criminals and terrorist financiers move money while disguising its origins and integrating it into the formal economy.
The vice has worsened due to digitisation of global commerce, which has acted as an enabler for electronic fraud including falsification of documents and lowering transportation costs for commodities.
The report also notes that trade-based money laundering feeds into other types of crime, such as corruption, illicit trade, drug trafficking, human trafficking and terrorism financing.
Trade-based money laundering, the report noted, is estimated to have deprived government of more than $6.6b (Ush24 trillion) in trade revenue with gold and petroleum products listed as some of the biggest victims of trade-based money laundering. Gold trade in Uganda has been growing over the years yet very little is known about the commodity.