Why Uganda remains in the grip of dirty money

What is money laundering?

It is a form of financial crime that, simply put, seeks to make “dirty money” appear squeaky clean. “Dirty money” needs laundering if it is to be of any use. In fulfilling one of its purposes of stashing the proceeds of crime, the tentacles of money laundering stretch into a range of criminal activities. These include general fraud, drug trafficking, terrorist financing, theft and embezzlement, as well as tax and customs violations.

What sort of businesses are used for money laundering?

The considerable ingenuity of rogue elements means no business is insulated, really. In Uganda, empirical evidence shows that criminals have an affinity with real estate, casinos, banks, virtual asset service providers, dealers in precious metals and stones, as well as money value transfer services.

Somewhere between 2017 and 2020, Uganda’s money laundering and terrorist financing watchdog started quietly pursuing a suspicious transaction report. The Financial Intelligence Authority (FIA) immediately burrowed deeply into claims that “a foreign politically exposed person” had been converting “dirty money” into physical casino chips.

Despite the suspect’s pretentious excellence registering at close range, the FIA confesses that the “matter is yet to be concluded.” The architecture, or—more accurately—lack of it, at casinos licensed by the National Lotteries and Gaming Regulatory Authority, makes it terribly difficult, FIA adds, “to effectively identify and monitor suspicious transactions and activities.” This owes much to the fact that, notes the watchdog, “the cash-based nature of the major games played [at casinos such as] roulette and black jack and the presence of illegal/unlicensed actors transacting in the sector” facilitate the pivotal layering stage in a money laundering process.

How many stages are we exactly talking about here?

Rogue elements go to great lengths to nuance criminally derived funds. They are known to exhibit remarkable creativity that must be followed with sufficient granularity so as to launder dirty money. The stages that follow episodically involve placement, layering and integration in that order.

During the placement stage, the “dirty money” is placed into an existing financial system with a dash of care and thoughtfulness. The money is siphoned off via cash-based businesses like betting shops. The rogue elements push the limits of their performances here to ensure it appears as if the money has come from a legitimate source.

To remove any perceptible glimmer of suspicion, the typically large amount of money is split into smaller transactions. This process christened ‘smurfing’ ends up with various people or ‘smurfs’ depositing the dirty money via one or more bank accounts.

How do the two other stages—layering and integration—play out?

After moving the “dirty money” away from an illegal activity, it is then layered purely by way of muddling. This is where accountants that lose no sleep after running the rule over fraudulent accounting practices come in handy.

Since the FIA’s latest National Risk Assessment report puts the money lending threat that confronts accountants in Uganda at medium-low, the smaller transactions in the possession of ‘smurfs’ end up in casinos. The sector was one eight that sent the red flags flying in FIA’s latest report.

Finally, the laundered money is integrated into the economy. Here, the rogue elements come up with something straightforward. Put simply, they extract money whose subtleties are made that much more difficult at the layering stage before deploying it in large-scale investments. Notably, for Uganda, in real estate. The FIA was more pointed when it referenced the case of Mr David Serwamba Musoke and six others, who were put through the meat grinder in May 2017.

“The accused persons purchased various landed assets, including a plot of land in [the Kampala suburb of] Buziga for about Shs100 million in cash,” the FIA revealed, adding that the seven also bought “a plot of land in Wakiso for Shs110 million.”

How does ‘integration’ disguise the source of the dirty money?

When the shroud of secrecy is peeled away, the patchwork disintegrates to reveal lawyers. A handful of them have attempted to earn their stripes by thinking of the old ruse here and there.

“Lawyers carry out activities for their clients, including formation and management of legal persons; buying and selling of real estate; managing of client money, securities, or other assets; and buying, and selling of business entities, among others,” the FIA noted in its report.

The 255-page report also draws on several anecdotes, including “the case of Uganda vs Godfrey Kazinda [where] the accused had transferred the [dirty money] to a bank account of a law firm.” The illegal funds were, remarkably, classed as “legal fees.”

An episode that played out anywhere between March 2020 and February 2021 also provided fodder for the FIA. Criminal proceeds totalling Shs20 billion were acquired “from a foreign citizen under the guise of selling gold.” A lawyer stands accused of facilitating the fraudulent transaction in the case that is still ongoing per the FIA.

Does this mean gold is used as a functional front?

Yes. Along with small enterprises that frequently take cash payments such as betting shops and mobile money outlets, the precious metal is indeed a functional front of sorts. The FIA in fact listed the money laundering threat rating for dealers in precious metals and stones as—much like it did in 2017—high. One anecdote in the report placed the army in the crosshairs.

The watchdog wrote: “In March 2021, senior army officers were arrested for involvement in a gold scam in which two foreign victims lost about $10 million (about Shs37 billion). The scam started in 2019 when two businessmen allegedly bought gold in Cameroon worth $5 billion. The gold bars were switched for aluminium bars. The victims were called and given a week to travel back to Uganda to recover their gold or forfeit it.”

It added: “In February 2020, the victims travelled to Uganda and the accused persons again sucked the victims into another gold scam in which they lost $2 million. The accused persons have since been charged in court for money laundering, facilitating money laundering and cheating.”

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