How dirty money is washed in Uganda

Real estate, mining/extraction, and fisheries are a magnet for money laundering, findings a four-year public inquiry have revealed.

In a new report released last Friday, the risk assessment carried out by the Finance Intelligence Authority (FIA) also showed digital representations of value that can be digitally traded or transferred are “highly vulnerable” to being abused by money launderers.

The report also noted that financial services that involve the acceptance of monetary instruments are quite popular with rogue elements intent on washing dirty money.

The study, which was undertaken from April of 2017 to June of 2021, was only the second risk assessment conducted in the country.

Uganda remains on the Financial Action Task Force’s (FATF) grey list on account of not taking full measures to combat money laundering and terrorism financing.

The FATF has warned that the country could face the ignominy of joining Myanmar (Burma), Iran, and North Korea on its blacklist “if there is insufficient progress” by October of 2023.

The FIA’s latest sectorial threat assessment has now sketched the sectors that ought to be targeted with precision.

The threat assessment “measures the exposure of accountable persons operating in the financial and designated non-financial businesses and professions sectors to proceeds of crime and money laundering”

Taken together with “threat based on predicate crimes and the proceeds they generate” as well as “exposure … and proceeds of crime generated outside of the country’s borders”, the FIA report—which spans 255 pages with both policy and sectoral recommendations—sketches an almost tangible portrait.

“The sectorial threat assessment identified banks and money service businesses, real estate, casinos and dealers in precious stones and metals as sectors widely used by criminals to launder proceeds of their crimes,” the report noted.

FIA specifically said of real estate that it “was being used to launder huge amounts of ill-gotten funds from corruption, embezzlement, fraud, and tax crimes.”

It is thought that weak and outdated laws facilitate widespread money laundering in the property sector.

And while a tranche of reforms floated by the first risk assessment in 2017 hauled the money laundering threat for Uganda from high to medium high, FIA insists there is work to be done.

This includes “amendment and enactment of new laws that meet international standards.”

Vulnerabilities, threats
While the study indicates that the securities and insurance sectors have been spared the visitations of money laundering and terrorism financing schemes, the same cannot be said of lawyers, dealers in precious stones and real estate agents.

FIA noted that most of them are opposed to being covered by money laundering laws due to the significant regulatory burden.

“Lawyers, especially advocates, are considered gatekeepers as they can provide access to the financial system on behalf of their clients, thereby allowing illicit funds into the financial system, wittingly or unwittingly,” the report notes, adding of lawyers who are deemed both vulnerable (medium-high) and threat (high) to money laundering, “For this reason, it is necessary to regulate their activities for [anti-money laundering and counter-terrorism financing].”

The report also spoke of real estate agents being “vulnerable to money laundering because of the inherent risks in the sector.”

It proceeded to note that “real estate agents in Uganda are not regulated and anyone can join the sector and engage in the business of acting as an agent of a party in a real estate transaction, more particularly if it has to do with sale, purchase, exchange, mortgage, lease or joint ventures, or other similar transactions on real estate or any interest therein.”

While noting that Uganda as of December 2020 had a dozen licensed casinos, FIA offered that IT systems for monitoring and reporting suspicious activity are conspicuous by their absence. It also found a spot of bother when it came to dealers in precious stones and metals.

“The porous borders and proximity to countries with illegal traffic of precious stones and metals (Democratic Republic of Congo and South Sudan), with smuggling to or through Uganda, make it easy for cross border trading that goes on unlicensed and unrecorded,” the report states in part.

External exposure
The threat of external exposure was also picked out in terms of imports from Kenya. The report in fact explicitly states that the United Arab Emirates, Kenya, South Sudan and the Democratic Republic of the Congo accounted for approximately 50 percent of about $14m (Shs51.5b) of the country’s exports as they pose a money laundering risk through inflow of export earnings.

Mr Lazarus Mukasa, a director at the FIA, told Monitor that despite Uganda having a comprehensive legal framework, which is in line with international money laundering standards, vulnerability to money continues to be of great concern.

“This is because of significant weakness in capacity of most regulatory and supervisory bodies and ineffectiveness of existing frameworks, thereby affecting the country’s ability to combat money laundering and terrorism financing,” he said.

Mr Mukasa is, nevertheless, confident that the many anti-money laundering controls that have been put in place will keep Uganda off the FATF’s blacklist.

The FIA’s report rates the money laundering threat for cybercrime as high.

It notes that the major conduits for cybercrime in Uganda are e-mail and website scams where people lose “huge amounts of money” buying non-existent products.

“Between 2017 and 2021, 860 cyber-fraud cases were detected and investigated, resulting in a loss of over Shs197,534,500,050 in which Shs59,610,000 was recovered,” the report notes.

Source: 2023 National Risk Assessment report