Anti-money laundering law: Who carries the heaviest cross?

To fight money laundering and terrorism financing, players operating in financial sector spaces and not for profit organisations will have to bear with stringent requirements, many of which, will increase the industry compliance cost, Prosper Magazine understands.

However, according to banking sector regulator Bank of Uganda, an effective anti-money laundering (AML) regime is a critical tool to fight financial crime and protect the integrity of the capital markets and global financial system.

On 30th August, 2022 Parliament passed a raft of what Financial Intelligence Authority (FIA) describes as “key legislations” to address existing gaps in the law on beneficial ownership information and proliferation financing, an important development in unmasking the names behind every transaction and assets.

The Six Bills Passed By Parliament addressing the Financial Action Task Force (FATF) Recommendations, requirements of the Customer Due Diligence for Financial guideline will, according to Bank of Uganda, be implemented by all Central Bank supervised financial institutions, including commercial banks), Credit Institutions (CIs), Micro- finance Deposit Taking Institution (MDIs), Foreign Exchange Bureaus (FXB) and Money Remittances Companies (MRs).   

The Bills passed include the Anti-Money Laundering (Amendment) Bill, 2022. This will empower the FIA and other supervisory authorities to levy administrative penalties for breach of the provisions of the Act and for related matters.

Then there is the Companies (Amendment) Bill, 2022, which essentially require all companies to make known their faceless/nameless directors. It also explains offences and sanctions. The rationale is to comply with recommendation 24 of the Financial Action Task Force (FATF) which requires countries to take measures aimed at preventing the misuse of legal persons for money laundering and terrorism financing.

The Partnerships (Amendment) Bill, 2022, will, among other things, empower the Minister to make regulations to prescribe additional reporting requirements to be complied with. As for the Trustees Incorporation (Amendment) Bill, 2022 that was also passed alongside the others, requires the Bill to provide for unmasking the details, including the names of the directors and other related matters.

 The Cooperative Societies (Amendment) Bill, 2022, was amended by inserting a new section 12A dealing with beneficial owners for the purposes of cooperative societies, to require cooperative societies to also disclose beneficial owners make known names of directors and others involved, and empower the Minister to make regulations for generally giving effect to the provisions on beneficial ownership and for related matters.

Then the Anti-Terrorism (Amendment) Bill, 2022 was amended to provide for the offence of proliferation financing and for related matters. Proliferation financing is the act of providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual use of goods for non-legitimate purposes), in contravention of national laws or where applicable, international obligations.

As accountable persons, now financial sector players are required by law to put in place policies, controls and procedures for monitoring and addressing risks relating to money laundering and terrorism financing or else be held liable for breaking the law.

Implications
Although the most strained with the anti-money laundering regime will be players in financial sector, the effect of this vice has far reaching implications on the economy as a whole.  
One such consequences is being put on a grey list by the Financial Action Task Force (FATF).  This is damaging in terms of attracting genuine investment or even endearing as an attractive investment detention.

“Being in the grey list means that credible investors stay away from your destination. This impacts on foreign direct investment and instead end up attracting crooks who do not care about investing in a country,” says FIA boss, Sydney Asubo in an interview with Prosper Magazine.
 
He continued: “You can be blacklisted by the FATF and that means that your banking system is formally excluded from corresponding with other banking institutions. So you cannot receive or send out foreign exchange because you are a blacklisted nation.”

The other issue is the legal risk. The bank can become a subject of law suits as a result of failure to observe what is known as the “know your customer” requirement.

“If the money laundering is not controlled, the money launders will take over the economy. That means tax evasion will becomes rampant, counterfeits will be the order of the day,” he said.

He continued: “The criminals will begin to control government policies and influence tax so as to avoid being taxed. Importantly, it distorts the economy. Their rates, thanks to smuggled goods, will always be lower. This distorts the economy as legitimate businesses will be forced out of businesses.”

Uganda was put on the grey list in February 2020.  The country was therefore required to comply, leading to passing of the six legislations irrespective of their implications on some key economic sectors.

With the passing of the legislations, Uganda should make a case for her to be removed from the grey list before the repercussions begin to manifest.

The report made several recommendations arising from the weaknesses that were revealed by the report, showing how Uganda’s level of compliance was very low. In January 2022, the executive director of the Finance Intelligence Authority, Sydney Asubo revealed that Uganda was at risk of being blacklisted by FATF unless the government made certain legal and regulatory interventions against money laundering by May 2022.

“Uganda was placed on the grey list in 2020. It means the country has been identified but it made commitments with the FATF to address the specific issues within a given time frame,” Asubo said.

When a country is on the grey list, it means financial transactions with other countries will be cautiously handled  as they are subjected to higher levels of scrutiny than those of other countries. This means slowing down and making the transaction between Uganda and other countries more costly.

Expert view
The AML laws is yet to be published. Until then, some sector experts say they cannot do much in terms of advising industry players to what extent the compliance rigidity will affect industry operations.
Dr Fred Muhumuza, lecturer of economics at Makerere School of Economics and former advisor, Ministry of Finance, says all the requirements passed in the law are not entirely new. Already, banks knew about them and were already complying with a number of them. So, although there is an added layer of responsibility, the sector already knew about them.         
 
For Mr Andrew Kyambadde, a legal expert on AMF and Illicit financial flows, the passed amendment will increase financial institutions and not for profit organisations’ compliance costs.

He said: “Banks now have to report  monthly and be accountable in case they do not do so. This is extra work for them. This means banks will have to employ a compliance officer or compliance team that has to ensure compliance with the law.”

The same applies to NGOs who will be reporting to NGO bureau.  
As a way forward, Mr Kyambadde notes that instead of having a person in charge of compliance there should be synchronised digital system where the regulators such as FIA can keep in the loop without necessarily having to be reported to all the time.