A man holds money. FATF is increasingly paying attention to crowdfunding and the use of virtual assets for terrorism financing.  PHOTO/MICHAEL KAKUMIRIZI


Money laundering, terrorism financing fight not over

What you need to know:

On March 14, Uganda successfully exited the grey list along with three other jurisdictions.

The Financial Action Task Force (FATF), in its biannual plenary that sat in Paris from 21 to 23 February 2024, removed Uganda from the FATF Grey list. Uganda had been on this list since 2020. The FATF grey list, also known as “Jurisdictions under increased monitoring,” is a list of countries that are considered to have strategic deficiencies in their systems for fighting Money Laundering (ML), Terrorism Financing (TF), and Proliferation Financing (PF).

The FATF grey list is published to assist member countries financially dealing with grey-listed countries to do so carefully by taking into consideration the published information in their risk analysis. It is also to highlight that those countries have made a political commitment to address their deficiencies within a time frame agreed on with FATF. 

FATF does not call for enhanced due diligence and application of sanctions (countermeasures) on grey-listed countries. However, the countermeasures are inevitable given that FAFT emphasises use of a risk-based approach. Therefore, countries tend to take actions they deem necessary for protecting their financial systems against risks emanating from grey-listed countries. 

After a commendable effort by various stakeholders, Uganda successfully exited the grey list along with three other jurisdictions that is, United Arab Emirates (UAE), Barbados and Gibraltar. The exit from the FATF grey list also prompted the European Commission to delete Uganda from the Anti Money Laundering (AML) blacklist on March 14, 2024.

On the other hand, Kenya and Namibia were the unlucky additions, bringing the FATF grey list to 21 jurisdictions. Kenya had initially been placed on this list in 2011 for three years until 2014 when they satisfactorily addressed the FATF recommendations, only to be put back on the list just ten years later. Quite painful, but it sends a message and some lessons for us to unpack.

 On average, it takes grey-listed countries four years to exit the grey list. The time varies, depending on political commitment and the number of recommendations to be worked on. For example,  Mauritius has in the past managed to get FATF clearance in a shorter time (two years). Even then, the consequences of being on the list are undeniable. 

A 2021 study conducted by the International Monetary Fund found that on average, countries grey-listed experienced reduced capital inflows resulting in 7.6 percent decline in the Gross Domestic Product . This is a consequence of reputational damage, increased transaction costs, longer times required to process transactions occasioned by enhanced checks, among others, thereby discouraging foreign direct investment. 

While removal from the grey list is cause for celebration, we need to keep in mind that it is not the end of the fight against money laundering, terrorism financing, and proliferation financing. While Uganda will no longer be under the FATF microscope, it is important to appreciate that we still have ML, TF, and PF risks. We are in a region that continues to face threats of terrorism, and terrorist activities do not happen without financing. Additionally, we face risks of financial flows from illicit mining and neighbouring countries, which are all grey-listed except Rwanda. We also still grapple with high levels of corruption whose proceeds are laundered into or out of the economy. Therefore, our financial system will continue to be under ML, TF, and PF threats which we must continue to assess and decisively address. 
ML, TF, and PF risks evolve, and new forms of risk are emerging. Any changes in the country’s risk profile will certainly attract the attention of FATF and FATF-style regional bodies that are responsible for mutual evaluation and assessments that precede the decision on whether a country should be grey listed. 

FATF is paying attention to crowdfunding and the use of virtual assets for terrorism financing, illicit financial flows from cyber-enabled fraud, and misuse of citizenship and residency by investment programmes, among others. Some of these issues are not alien to Uganda. For example, virtual assets are currently outside the regulated financial services without being prohibited in the market and hence can be exploited to facilitate ML, TF, and PF activities. Therefore, we must continue making timely assessments of potential new risks.  

Davis Tushabomwe is a senior associate, advisory at PwC Uganda.