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Oil sector urged to guard against money laundering
What you need to know:
- Set to straddle 1,445km, an unprecedented statistic in the world for a heated pipeline, the Eacop will, upon completion, transport Uganda’s crude, if waxy, oil from Hoima to the Tanzanian port of Tanga.
- The excitement expressed this week speaks to how Uganda’s government is hedging its bets on the so-called black gold.
News this past week that the East African Crude Oil Pipeline (Eacop) pipelines are set to be transported to a coating plant following their arrival via the Dar-es-Salaam port was greeted with excitement.
Set to straddle 1,445km, an unprecedented statistic in the world for a heated pipeline, the Eacop will, upon completion, transport Uganda’s crude, if waxy, oil from Hoima to the Tanzanian port of Tanga. The excitement expressed this week speaks to how Uganda’s government is hedging its bets on the so-called black gold.
Per the country’s Domestic Revenue Mobilisation Strategy 2019/2020 to 2023/2024, oil and gas is a central plank in the extractives industry that will be relied upon for generating revenue. Yet the findings of a four-year public inquiry by the Finance Intelligence Authority (FIA) released in August put the money laundering risk ratings for the extractives industry at high for its vulnerability and medium for the threats it teems with.
Before that, the Global Financial Integrity (GFI) in 2016 estimated that Uganda lost Shs598.1b ($162.8m) in potential tax revenue to illicit financial flows (IFFs) brought on by trade mis-invoicing. The GFI classifies IFFs as the illegal movements of money or capital from one country to another. IFFs, the Washington, DC-based think tank adds, undermine the political and economic stability of countries around the world. This ultimately provides little to no benefit to economies hoping to benefit from the oil and gas sector.
IFFs in developing countries like Uganda are midwifed by aggressive tax avoidance that exploits gaps in the law such as international double-taxation agreements between countries. The FIA joined other researchers in describing IFFs as a growing concern.
A report by the Advocates Coalition for Development and Environment (Acode) noted that the risks in the oil and gas industry are mainly explained by the nature of the oil companies involved. The major international oil companies operating in Uganda’s oil sector are registered in tax havens. A number of them have hidden ownership structures, making it highly probable the possibility of IFFs.
Acode disclosed that five percent of IFFs in the oil and gas sector are attributable to corruption that is perpetuated via offshore accounts that make the most of veils of secrecy. The report also indicated that 65 percent of the IFFs are due to commercial drivers, including Double Taxation Agreements (DTA) abuse/treaty shopping, unequal Production Sharing Agreements (PSAs), and stabilisation clauses in the aforesaid PSAs.
Base Erosion and Profit Shifting (BEPs) from abusive transfer pricing and profit shifting through price manipulation, possible manipulation of recoverable costs or claim of ineligible costs as well as inflated headquarter costs and interest rates compound matters.
Acode also revealed that 30 percent of the IFFs are down to crimes such as misreporting of petroleum volumes and quality, tax evasion, oil theft and bunkering, as well as violations of environmental standards and social regulation.
Mr Peter Muliisa, Uganda National Oil Company’s chief legal and corporate affairs officer, said thus: “Should you be convicted of bribery, corruption, money laundering or any form of illicit crimes of any of these crimes then it will be very difficult or even impossible for you to get a contract in this sector.”
Mr Julius Mukunda, Civil Society Budget Advocacy Group’s executive director, offered support, adding that the oil and gas sector is one of the highly regulated sectors in Uganda.
