What you need to know:
According to the United Nations Conference on Trade and Development, Africa loses nearly Shs330 trillion annually to Illicit Financial Flows with Uganda alone losing between Shs2-6trillion annually.
In an interview, the deputy executive director for Advocates Coalition for Development and Environment, Mr Onesmus Mugyenyi explains to Prosper Magazine’s Ismail Musa Ladu why government should pay attention to Trade-Based Money Laundering, another form of IFF draining the country of revenue.
1. Why should the tax policy makers and the tax authority care about Trade-Based Money Laundering (TBML) which is another widespread form of IFF?
Tax policy makers and tax bodies should be concerned about TBML because it is a threat to domestic revenue mobilisation required for financing development. Trade mis-invoicing which is one of the methods of TBML denies the tax body the much needed revenue for a country like Uganda that does not have enough resources to finance its budget.
Remember, accordding to Uganda Revenue Authority’s half year revenue performance report, there has been revenue deficit, and all this is happening in the wake of inflation triggered by theRussia-Ukraine situation and the after-effects of the pandemic.
2. What does TBML perpetuate and its effects to the businesses, livelihoods and the economy?
It perpetuates revenue leakages and illicitly earned money which can be used to finance crime. It also distorts trade as genuine businesses may face unfavourable competition from businesses that are involved in TBML. TBML deprive the government of much-needed tax income, which in turn limits the amount of money it can spend on activities like security, administration of justice, social programmes, development programmes and human rights protection.
3. Since TBML is a global challenge, how can a country like Uganda deal with it?
Uganda should be part of the international discussions and implement recommendations from the international community. For example, Uganda should put in place the required institutions and finance them to do the job. We need enabling laws that have deterrent penalties.
4. The latest policy memo, titled: Trade-Based Money Laundering: A Global Challenge, authored by Global Financial Integrity, Fedesarrollo, Transparency International Kenya and ACODE,addresses TBML issues. What are some of the issues that concern Uganda?
Several things came up. But in particular, gold, which is one of the most valuable resources is vulnerable to TBML schemes because it is a cash-intensive industry with limited oversight and the origins of gold are hard to trace. This makes it easy to, for example, co-mingle smuggled gold with legally mined gold.
Note that gold has become the country’s leading export product since 2018, overtaking coffee. As of 2020, Uganda’s annual gold exports amount to $3.47 billion in value, accounting for 59 percent of Uganda’s export earnings.
However, according to the analysis contained in the report, domestic production of gold has not grown comparably. At the same time, Uganda’s $1.97 billion imports of gold in 2020 do not make up for the difference with the official export figures.
Furthermore, there is no clear data on the mines from which this gold is sourced within or outside Uganda, and Uganda’s Central Bank estimates that only about 10 percent of gold exports are mined domestically. These inconsistencies in trade data raise the TBML risk profile of the Ugandan gold sector.
5. So, how can the authorities deal with TBML challenges?
I must say that TBML is a big challenge. There is need to implement Beneficial Ownership laws, enforcement of sanctions systems, raise awareness and provide training on TBML among private and the public. This is because the main victims are citizens of this country who finally fail to get services from government due to limited revenue to finance development.
6. How bad (rampant) is the TBML is in Uganda on a scale of 1 to10?
There is no concrete research to determine the magnitude but what is clear is that significant revenues have been lost in TBML. And from analysis of the situation we realised the challenge is big. So the scale could be four out of 10, but remember if nothing is done to deal with it the scale could tip he scale to a hopeless point. We can still redeem the situation if we move swiftly.
7. What are some of the key economic sectors in Uganda where TBML is rife?
Top most exports perceived by stakeholders as vulnerable to trade mis-invoicing include: extractives sector. For example, gold and gold compounds, petroleum products and other precious metals.
Also high on the list are commodities such as sugar and sugar confectionery, skins, fish and fish products, cobalt, vanilla, tobacco, iron and steel, cement, flowers, plastic products, and animal/vegetable fats and oils.
Also note that the most vulnerable export commodities to trade mis-invoicing includes: coffee, tea, spices; fish, crustaceans; tobacco; edible oils, waxes; salt, stone, cement; iron and steel; cocoa; grains, seeds and fruit.
8. Who are the beneficiaries and ultimate victims of this vice?
The actual beneficiaries of TBML are largely politically connected businesses involved in international trade. It is those companies that are involved in goods characterised by high-value, low-volume, (such as precious metals like gold), low-value, goods with wide pricing margins where mis-invoicing is largely possible; goods with extended trade cycles (that is, shipping across multiple jurisdictions); and goods which are difficult for customs authorities to examine.
The ultimate victims are the citizens who will be deprived of social services.