Who wins war against Anti-money laundering?

As a result, Not-for-Profit Organization (NPO) operating in the country are deemed as accountable persons, meaning NGOs and related charitable organisations are required by law to put in place policies, controls and procedures for monitoring and addressing risks relating to money laundering and terrorism financing. 

But NGOs say banks don’t want to associate with them following the lengthy and bureaucratic compliance  procedures pegged to the Anti-Money laundering law.  

 On the contrary, this development is inconsistent with the recommendations of the Financial Action Task Force (FATF), a global money laundering and terrorist financing watchdog, according to Defenders Protection Initiative (DPI) assessment.

Unwilling 
Prosper Magazine’s mini survey of banking industry players, indicates that the country’s commercial banks prefer to “play it safer” by terminating or restricting business relationships with clients falling under NGOs and related NPOs category. 

Despite being one of the vibrant economic sectors, it has emerged that the financial industry players would rather avoid than manage required compliance burdens, describing the AML/CTF as “too much, too risky and too costly” a venture to be part of.

This has been corroborated by a policy brief titled: ‘The Justification to De-Classify NPOs in Uganda from the List of Accountable Persons.’ According to the brief meant for policy reform, increasing cost of compliance has resulted in many banks de-risking (terminating or restricting business relationships) types of customers considered or perceived to pose a higher and not-sustainable risk. This de-risking has not spared the NPO sector, currently bearing the brunt.  

  As a result of Financial Institutions de-risking of NPOs, European Commission (EU) in its analysis argues that it open up can of worms. 

According to the EU, informal money transfers are generally only used because banks are becoming increasingly unwilling to provide financial services to NPOs.

Financial compliance cost 
Financial inclusion for NGOs has been a long-standing concern as measures to address the AML/CFT have sometimes overshot and led to organisations being unable to access needed funds, according to a study detailing the implication for financial inclusion and the costs of compliance on the work of the NPO sector.

Further, a  study by VOICE  published in March 2021 on the impact of sanctions and the cost of compliance, which included a survey of NGOs , found that NGOs “are constantly ‘walking on thin ice’ with banks and in spite of the efforts to engage banks in discussions, the banks simply ‘do not care’. 

This forces NGOs to find work-arounds which include resorting to less transparent means, like informal money-transfer systems. This greater risk-taking undermines their financial integrity. Financial integrity policy thus becomes counter-productive for protecting NGOs from terrorism financing abuse, as it leads to the exclusion of NGOs from the banking sector. 

The report also notes that, AML/CFT compliance has also a significant cost for the NPO sector, which is burdensome considering that the sector relies on donations. 

In Uganda, this has resulted in significant and burdensome costs by damaging the earned public trust, integrity, reputation and consequently interfering with the legitimist operation of NPOs at a critical time of need for their good works. 

An indication of costs involved in complying with sanctions and combating terrorism restrictive measures, according to the VOICE survey, based on estimates provided by the NGOs that participated to the survey ranges from €45,000 (about Shs186million) to €300,000 (Shs1.2 billion) per year.

Way forward 
Financial Action Task Force (FATF) clarifies that not all NPOs are high risk. Some may represent little or no risk at all. For that, measures for the sector should be focused, proportionate and based on risk, and that should be applied without disrupting legitimate NPO activities. 

The most recent 2021/2022 Terrorism Financing Risk Assessment for the Non-Profit Organisations sector in Uganda as undertaken by the government indicates that generally, NPOs are largely not involved in a wide range of activities which would potentially expose them to terrorism financing risks.

The National Risk Assessment (NRA) further analysed terrorism and Terrorism Financing  risks, concluding that the threat and vulnerability for Uganda are medium-high at national level. However, Uganda-based NPOs are not indicated among the sources of Terrorism Financing of the terrorist organisations that are identified by the NRA as a threat to the country.

The law
When contacted on Wednesday last week, the executive director of the Financial Intelligence Authority of Uganda (FIA), Mr Sydney Asubo, said: “Until the law is changed, NGOs remain reporting entities (accountable persons) under the Anti-Money Laundering Act.”

He also disclosed that recently, NGOs presented a petition to FIA to be removed from the list of accountable persons.

“This petition is still under consideration and consultations with relevant stakeholders are on-going. Until then, the law applies as is,” said Mr Asubo.

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