Uganda still on grey list for failure to curb money laundering
Tuesday March 14 2023
Uganda is in the crosshairs of anti-money laundering and terrorism financing agencies after failing to enforce regulations in the non-governmental organisations (NGOs) sector and slow progress on the prosecution of money laundering and corruption cases.
This has seen its capital, Kampala’s efforts to exit the global grey list over the past three years fail.
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“The global Anti-Money Laundering/ Countering the Financing of Terrorism (AML/CFT) grey list maintained by the Financial Action Taskforce (FATF) based in Paris, consists of countries with significantly weak anti-money laundering and terrorist financing enforcement regimes; that are prone to be blacklisted in the international financial system in case of persistent compliance shortcomings,” financial experts say.
A grey list status usually translates into relatively high costs incurred on electronic financial transfers carried out by commercial banks, huge costs on the processing of letters of credit, increased transaction fees incurred on overseas remittances and reduced dollar inflows.
A new compliance deadline, June 2023, was issued last month after Uganda failed to fulfil the FATF requirements.
“We are optimistic to exit by yearend. The items remaining are very few, though the language/wording FATF used on a statement for Uganda has become much stronger,” said Michael Olupot Tukei, Deputy Executive Director at Uganda’s Financial Intelligence Authority
“The FATF expresses concern that Uganda failed to complete its action plan, which expired in May 2022. It strongly urges Uganda to swiftly demonstrate significant progress in completing its action plan by June 2023 or it will consider next steps if there is insufficient progress,” reads a FATF country assessment brief.
Nigeria and South Africa were added to the grey list. Other African countries are Tanzania, South Sudan, the Democratic Republic of Congo, Burkina Faso, Mali, Mozambique, and Senegal.
Read: EU lists Mauritius as high risk country for money laundering
Morocco and Cambodia were removed from the FATF grey list after successful compliance reviews announced last month.
“Many NGOs in Uganda rarely comply with AML/CFT regulations because they perceive themselves as low-risk entities. This explains why an NGO would receive $3 million from a foreign donor and not declare it to the FIA,” Robert Suuna, a consultant at the African Women's Development and Communication Network (FEMNET), a Kenya-based NGO said.
“But the law does not allow the FIA to sanction NGOs for failure to file returns on large or suspicious transactions captured in their operations. However, the Uganda Registration Services Bureau (URSB) requires NGOs to disclose the identities of beneficial owners under new regulations and this might help increase awareness of AML/CFT compliance standards within the NGO sector,” Suuna said.
"On the other hand, four months might not be enough for Uganda to comply with FATF’s pending requirements and the potential blacklist status might make life harder for the country’s political leadership.”
Reporting guidelines obscurity
While the introduction of beneficial ownership disclosure regulations for companies and trusts has demonstrated commitment towards the fulfilment of global AML/CFT compliance rules, lack of clarity on reporting guidelines might affect compliance behaviour in some business circles.
“The new beneficial ownership disclosure regulations apply to registered companies, trusts, and partnerships existing in Uganda. But the application of these rules seems complicated in certain situations. For example, the ownership of listed companies keeps changing every week, and maintaining records of their beneficial owners might not be practical under official deadlines.
"Some of our European clients have businesses that feature beneficial owners but are unable to disclose their identities in Uganda because of limitations tied to the European Union’s General Data Protection Regulations of 2019. There is no guarantee that URSB can safeguard such information effectively in our client’s best interests. As a result, the registrar of companies offered some of our clients an extension in the compliance period that appears open-ended,” argued Ronald Kalema, a lawyer at Bowmans Uganda, a Kampala-based law firm.
“Filing beneficial ownership forms is quite easy but enforcement of those regulations is almost non-existent. Family businesses do not usually have beneficial owners, but many casino businesses are likely to possess beneficial owners in their operations who appear opaque to the general public,” said Cornelius Henry Mukiibi, Managing Partner at C. Mukiibi-Sentamu and Company Advocates.