Uganda in the spotlight over money laundering

People conduct business around Afriland First Bank on Buganda Road in Kampala on May 26, 2022. PHOTO/FRANK BAGUMA

What you need to know:

Uganda is walking a tightrope as it seeks to avoid careening towards the cliff of a global blacklist for money laundering and terrorism financing. As the deadline, barely in a month’s time nears, the country must address 16 issues if it is to escape the sanctions of the Financial Action Taskforce (FATF), an intergovernmental money laundering and terrorism financing watchdog. Early this week, a commercial bank whose subsidiary in the neighbouring DR Congo came under scrutiny for money laundering exited the Ugandan market, as Emmanuel Mutaizibwa writes.

In 2020, Uganda was placed on the grey list of the global agency. Countries under the grey list have deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing. 
Any country that appears on the grey-list including Uganda and 22 other countries, is automatically placed on the blacklist of the European Union and United Kingdom. 
This means transactions originating from Uganda or made through Uganda’s financial system and cash from or to the country, face more scrutiny by the international systems, which leads to delays in concluding the business transactions.

Addressing a news conference on Thursday, executive director of Financial Intelligence Authority (FIA) Sydney Asubo revealed that the country will likely meet the demands of the watchdog and be removed from the grey-list. 
“It is on this basis that countries submit to what we call periodic mutual evaluations. An assessment is done to determine how the country is compliant with two categories. First of all, do you have the laws required to fight? the second issue is to determine how effectively do you apply [the law] that’s why they ask questions how many convictions do you have? How many prosecutions? How much money have you confiscated from criminals? We have addressed six of those issues and 16 were pending, they will be more improvements.” 
Uganda was last assessed in 2016 and a number of non-compliant issues were identified.
Among a raft of changes that the FIA has put in place includes ensuring that competent authorities have timely access to accurate basic and beneficial ownership information for legal entities. 

A beneficial owner is defined as any individual who ultimately owns or controls a legal entity or arrangement, such as a company on whose behalf a transaction or activity is being conducted. It is increasingly a matter of global concern that allowing such beneficiaries to remain anonymous has enabled the concealment of considerable questionable financial activity, and many governments are demanding greater transparency about beneficial ownership.
The others require law enforcement agencies and judicial authorities to establish and implement policies and procedures for identifying, tracing, seizing and confiscating proceeds and instrumentalities of crime.
If Uganda fails to comply with the requirements and is dismally assessed farther, it could slip into the blacklist, which currently has Iran and North Korea.
The dire consequences of blacklisting could bring the banking sector to a shuddering halt.

“When you are on the grey list, the risk is you move to the black list. That is why we are working very hard to ensure that we remain on the grey list until we have addressed all the issues, the consequences of the black list will be that this will obviously negatively affect the ability of our financial institutions to conduct international financial transactions and international business in general, commercial banks foreign operations will be crippled by the sanctions that will among other things prohibit other foreign financial institutions from dealing with our financial institutions. This could affect the receipt of our export earnings, similarly investments will be adversely affected since investors will shy away from investing in the country that has been blacklisted by the AFTF,” Mr Asubo told Daily Monitor.
He says there are five sectors—gambling, real estate, legal and accounting firms, and the minerals sector that have been placed under the microscope.

With the country firmly placed in the crosshairs, there are fears that authorities are not doing enough scrutiny.
“The greed to attract Foreign Direct Investment [FID] here tends to overshoot other considerations, we have so many times politicians tell us don’t disturb my investors. I think that is not the way to operate. Briefcase companies operate that way. Someone has no track record or has a bad track record, then you make it easy for them to establish themselves and do business here. I want to applaud the Bank of Uganda for having a strong supervisory department. All said and done and this is out of my own conviction that Uganda we need what we call a fiscal committee, where all these people who are concerned with investment [belong],” argues Robert Ssuuna, an economic policy analyst with Advocates Coalition for Development and Environment (ACODE).

Bank exit
On Thursday this week, Bank of Uganda announced that Afriland First Bank has asked to voluntarily exit Uganda just slightly over two years after it was granted a licence in September 2019.
The bank, according to details with the Central Bank, has not administered any credit or loans in the 16 months it has been in Uganda.

While announcing the exit, Bank of Uganda Deputy Governor Michael Atingi-Ego said Afriland’s decision for voluntary liquidation was an outcome of strategic business review by the shareholders - Afriland Group.
Bank of Uganda, he said, had last Wednesday approved the request from Afriland to apply to the High Court for voluntary liquidation.
Afriland formally started its operations on December 1, 2020, about three months before the economy was locked down due to Covid-19.

“Look at the timelines of this particular institution, they got their licence in September 2019. We locked down the economy in March for them against the circumstances, they begin operations in December 2020, but then we had a second lockdown, I think the shareholders have decided to have a rethink, this is not the only bank where Afriland has a presence,” argues Mr Tumubweine Twinemanzi, the executive director of supervision at Bank of Uganda.
But the bank whose shareholders are locked in a dispute, which is before the High Court, does not have a squeaky-clean image across its continental operations.
In the neighbouring DR Congo, two Kinshasa auditors at Afriland Bank exposed the underhand methods of the bank. They leaked thousands of documents showing the bank’s ties to sanctioned Israeli businessman Dan Gertler, who was a close friend of the former DR Congo president, Joseph Kabila.

“From the information we have because otherwise we could not have licenced, that was never the case. At the time we had the application yes there was the suspicion, but that was verified and not sure, it exited not because it was under-capitalised. It was a strategic decision but Gertler is not associated with Afriland,” reveals Tumubweine.
 “Some prominent banks here in Uganda and in the region are moving to that direction of corporate clients rather than retail banking. I am not excusing banking supervision of the Central Bank probably now, they need to dig deeper, that some people will come under the coat of providing this kind of product yet they are actually money laundering,” argues Corti Paul Lakuma, a research fellow in the macro-economics department at the Economic Policy Research Centre. 
DR Congo estimates that it may have lost nearly $4 billion as a result of dubious mining and oil contracts signed with Gertler, a coalition of non-governmental organisations estimated.

At age 23, Gertler travelled to the DR Congo and reportedly gave then-President Laurent Kabila $20 million in cash – money that was then used to buy weapons – in exchange for a monopoly on Congo’s diamond exports. He then, according to the US Treasury Department reports, leveraged a tight-knit relationship with Kabila’s son and Congo’s subsequent president, Joseph Kabila, to make “hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in the Democratic Republic of the Congo.”
He built a fortune on the ruin of a costly war in the DR Congo where thousands of civilians were slaughtered.
Many of these deals involved asset flipping, with Gertler opaquely obtaining natural resource concessions for undervalued prices and then selling them for enormous profits with minimal or no investment. In one instance, he reportedly bought a mine for $60 million and then made a windfall of $680 million.
In 2013, after 15 years of diamond, cobalt, and oil deals in Congo, Gertler made it to the Forbes’ list of the world’s top 25 youngest billionaires.
“Analysis of public financial data shows that between 2003 and 2021, the DR Congo lost $1.95 billion in revenue,” said the anti-corruption coalition, “Congo is not for sale” (CNPAV).

Executive director of Financial Intelligence Authority Sydney Asubo.

In March 2021, the United States reinstated sanctions against the billionaire, decided in December 2017 by the US State Department, but which had been eased just before Donald Trump left the White House.
Washington accused him of causing the DR Congo to lose “$1.36 billion in tax revenue” in the 2010s.
The leaked records of alleged money-laundering centred on Afriland First Bank’s branch in Kinshasa, were made public by the campaign group, the Platform for the Protection of Whistle-blowers in Africa (PPLAAF).
The two auditors have since fled to Europe after expressing fear for their lives taking with them a trove of documents. They were sentenced to death in their absentia. Part of these documents show an elaborate scheme of how firms linked to Gertler were able to circumvent sanctions imposed on him by the United States.

US view
The US Treasury had accused Gertler of amassing his fortune ‘through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals’ in Congo-Kinshasa.
The revelations came a month after it emerged that Gertler had cut a deal with officials in the outgoing Donald Trump administration suspending the sanctions for a year.   
The move has prompted three Democrat lawmakers – including the chair of the House Committee of Foreign Affairs – to write a February 3 letter to Treasury Secretary Janet Yellen, saying the waiver ‘upends US policy’ towards Congo-Kinshasa and calling for it to be reversed. These concerns are being raised as President Félix Tshisekedi appears to have wrested control of the National Assembly in Kinshasa away from his predecessor Kabila whose leverage and clout continues to wane. 
Gertler says the documents were forged. 
Mr Asubo says Uganda should not be concerned about Afrilands Bank footprint in the DR Congo as the subsidiary here is different and ‘as far as we concerned there are no money laundering concerns that have been associated with this bank.’

“The rules that apply to the banks, apply to the customers of the banks those are the transactions we focus on. The transactions that the banks do between themselves or one their own behalf are expressively excluded because their oversight falls under the purview of the Central Bank. But also, these banks operate as independent subsidiaries, so the subsidiary in Uganda is run independently to the subsidiary in the DR Congo. It doesn’t translate that the misdeeds of the subsidiary of another country will apply to a subsidiary in another because the management is different, the rules are different.”
Scrutiny of the documents on the company accounts at Afriland First Bank, one of Central Africa’s largest financial groups, and these latest allegations of money-laundering made against Gertler’s companies, are likely to form part of the review of his case in Washington DC.  
On February 25, representatives for Gertler and Afriland told journalists that a court in Kinshasa had convicted the whistleblowers for ‘criminal conspiracy’ and sentenced them to death. 

The documents reveal how Gertler’s murky network operated below the radar to avoid detection by US anti-money-laundering restrictions and banks’ compliance departments. A previously unknown company, which had ties to Gertler, received around a quarter of the Afriland branch’s entire loans in early 2019, and several companies tied to alleged financiers of Hezbollah and North Korea’s armaments programme also held accounts at the branch, the evidence shows.
The whistle-blowers revealed that they took notice of these strange transactions at Afriland in early 2018, soon after the US imposed sanctions on Gertler and his companies in December 2017. 

Some of the evidence gathered by Navy Malela, one of the in-house auditors officers at Afriland First Bank in Kinshasa, show how a special intermediary account at the bank that was not tied to any individual – called the disposition à payer (DAP) account - allowed companies in Dan Gertler’s network to convert millions of US dollar banknotes into euros. The euros were then moved into accounts run by associates of Gertler, or members of his immediate family.
These methods appear designed to navigate United States sanctions, which prohibited Gertler from conducting bank wire transactions in dollars. The use of front companies could also allow him to avoid compliance officers at other banks, who can block transactions over corruption risks.
Mr Alain Mukonda, a Congolese businessman was a key figure using the intermediary DAP account in Kinshasa. 
 
Over six months, from January to July 2018, Mr Mukonda made deposits of $10.5m and €3.5m of cash into the DAP account, and withdrew $7.1m and €6.3m. He has denied operating on behalf of Gertler, yet he is listed as the ‘president’ of Ventora Development and personally handled the re-domiciling of several of Gertler’s companies.
Mr Mukonda’s last euro withdrawal took place on 10 July 2018, when he took €2.169m from the Kinshasa DAP account. Records indicate that this money arrived in the DAP account from Ventora Global Services, another Gertler-linked company at which Mr Mukonda was manager. 

On the same day, the exact same amount was deposited, in cash and in euros, into the account of Western Financial Services (WFS) the bank records show. This is the very first transaction visible in WFS’s Afriland records.
Money laundering is a form of Illicit Financial flows and it is estimated that Uganda loses Shs2 trillion annually.
 Insufficient levels of financial transparency—globally and domestically—and government accountability in Uganda, coupled with a regulatory system that can incentivise financial crimes, are helping to drive high levels of illicit financial inflow and outflows in the country, which are undermining development efforts. Uganda will struggle to meet its goal of rising to the lofty middle-income status and reducing its reliance on foreign debt unless it combats illicit financial flows. Three policy areas should be the central focus for the government: eliminate the allowance and use of anonymous companies in the economy, reduce the ease and volumes of trade misinvoicing, and enforce anti-money laundering laws, particularly within the banking sector.

Welcome!

You're all set to enjoy unlimited Prime content.