What next after dirty money keeps Uganda on grey list?

On June 17, it communicated that Uganda will remain on a grey list that captures countries with deficiencies in their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) controls.

While the FATF’s blacklist has only two countries; North Korea and Iran, the grey list has 23 countries. Along with Uganda, the grey-listed countries include Albania, Barbados, Burkina-Faso, Cambodia, the Cayman Islands, Gibraltar, Haiti, Jamaica, Jordan, Mali, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Sudan, Syria, Turkey, the United Arab Emirates (UAE), and Yemen.

Back in May, there were genuine fears that Uganda was destined to be blacklisted.

Mr Sydney Asubo, the executive director of the Financial Intelligence Authority (FIA)—a government body which is, among others, charged with enhancing and identifying proceeds of crime and combating of money laundering and terrorism financing—didn’t mince his words at a media briefing.

Still lucky

“We are not yet on the blacklist of the European Union. What happens is that if the European Union puts you on the grey list, the UK automatically puts you on its blacklist,” Mr Asubo explained back then, adding, “When Uganda was assessed in 2016, a number of issues were identified and a review in 2020 [found that] some issues were still not addressed. There were 22 particular action items. These were to be addressed by January, but the deadline was pushed by four months due to the Covid-19 pandemic disruptions.”

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While Uganda fell short in its attempt to be hauled off the grey list, Malta was given the all-clear. The archipelago improved its AML/CFT regime by pushing through commitments that make it possible to know the owners of companies, their jurisdictions, and also putting in place sanctions on gatekeepers who fail to obtain accurate beneficial ownership information.

Malta is also no longer the subject of the FAFT’s Increased Monitoring lot because it has shown competence in using financial intelligence to pursue tax-based money laundering cases.

All of these action points continue to elude Uganda. In fact, the head of Uganda’s Anti-Corruption Court told Saturday Monitor that the FATF’s latest report still has the East African nation firmly in the crosshairs.

“The report to me is saying you are not demoted, but you are remaining in the same class,” said Justice Lawrence Gidudu of the body of work titled Jurisdictions Under Increased Monitoring, adding, “The FATF is using diplomatic language to raise their concerns, but the things we are supposed to do as a country to get off either the grey list or not to go into the blacklist are far from being possible because… they want an institutional response by all actors, which is not the case at the moment.”  

Chequered past

In its evaluation of Uganda’s efforts to combat money laundering, terrorist financing, and proliferation financing, the FAFT credited Uganda for its “high-level political commitment to work with [the FATF] to strengthen the effectiveness of its Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) regime.” Uganda, the FAFT added, demonstrated progress, such as conducting Terrorisms Financing (TF).

A number of strategic deficiencies were, nonetheless, pointed out. The first area where Uganda has continued to stumble—according to the FAFT—is seeking international cooperation in line with its risk profile. 

“This means we have a lot of risks of dirty money either emanating from Uganda or going outside or dirty money coming in,” a former senior prosecutor at the Anti-Corruption Court, said, adding, “That means we should have cases where we can demonstrate that we have had engagements with other stakeholders in the anti-money laundering community.”

He proceeded to note: “When you are talking about international channels, you are talking about formal and informal channels. So, can the law enforcement agencies in Uganda illustrate the cases they are working on, for example, to recover money from abroad? I’m not aware of such cases.”

In 2017, the paradise papers by the International Consortium of Investigative Journalists (ICIJ) revealed that then Foreign Affairs minister Sam Kutesa created offshore companies, which benefited him and his family.

Mr Kutesa, a former president of the United Nations General Assembly, was linked to the Obuyonza Discretionary Trust in Seychelles, a tax haven. Mr Kutesa’s daughter, Ishta Asiimwe Muganga, was listed as a beneficial proprietor, as well as a future beneficiary of money from the Trust.

Obunyonza, the papers further revealed, provided consulting and airport services in Uganda.

Mr Kutesa was also reported to provide ground-handling services at Uganda’s Entebbe airport through his other company—Entebbe Handling Services or Enhas. In a 2017 interview with the Daily Monitor, Mr Kutesa confirmed forming companies but he was also quick to deny any wrongdoing.

“I have never done anything with it at all. I told Appleby (an offshore legal services provider known for helping to set up shell companies, trusts, and other secretive financial products in tax havens) to close it many years ago, “ Mr Kutesa, who was censured by Parliament in the 1990s after engaging in what was deemed as corruption, said. 

Uganda was also captured in the Pandora Papers, albeit vaguely at first. One politician and eight companies—whose names were never disclosed—were cited.

Strategic deficiencies

Experts say one of the key issues dogging Uganda is its failure to cooperate with international security agencies even as many Ugandans open offshore accounts in tax havens. For instance, the ICIJ, in its leaks, revealed that Mr Jim Muhwezi owned and held shares in two shell companies. Mr Muhwezi—who, like Mr Kutesa, was censured by the House in the 1990s for engaging in corruption—was the Information and National Guidance minister when he became one of the shareholders of Audley Holdings Ltd domiciled in the tax haven of the British Virgin Islands. 

When it comes to international cooperation to fight dirty money, the FAFT says Financial Intelligence and evidence may be attained through formal and informal cooperation of countries. 

Informal channels include networks that connect Financial Intelligence Units (FIUs) such as the Egmont Group7, as well as police-to-police channels, Interpol, diplomatic channels, regional AML networks like Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), and the Asset Recovery Inter-Agency Network of Southern Africa (ARINSA). 

Although the FAFT says formal mutual legal assistance requests should be based upon substantial domestic investigation and used alongside informal communication networks, experts interviewed insist this remains on paper as countries seem to have different interests. 

“Governments want to attract people with money. They seem not to care where this money is coming from,” Justice Gidudu said, adding, “If you reject the money, these guys go to another country where they will be accepted. So, the country that rejected the money ends up losing.”  

Another area that has proven elusive for Ugandan authorities is addressing the opaqueness that surrounds the ownership of Ugandan companies. Uganda is supposed to amend the Companies Act so that it becomes easy to know the real owners of companies.

“Company registration is still a secret matter. I think they are indicating we should be able to go into the Uganda Registration Services Bureau website and insert the words of the company… and it should be able to tell us the history of all the owners and directors—their shareholding and directors from the time it was registered to the current time,” said Justice Gidudu, adding that Uganda doesn’t have that kind of facility yet.

The road to getting information about Ugandan companies, as things stand, is full of roadblocks. At least, as far as Justice Gidudu is concerned.

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“Because, let say, you are not in Kampala, you will use the money on transport to come from wherever you are, then pay a fee to Uganda Revenue Authority for searching the register, then [the company registry] give[s] you the information,” he revealed, adding, “But they don’t hand you the file for you to peruse to know it was started by so and so, the directors were so and so, they changed to so and so. You don’t get those transactions because they don’t give you the entire file.”

‘Be transparent’

Justice Gidudu as such believes the FAFT is trying to tell Uganda that the legal framework surrounding the registration of companies should change to allow more transparency.

The judge reasons thus: “They are saying when you register a company here, that information is uploaded on the URSB website so that when I’m, say, in London (UK) and I just insert words URSB, I’m able to look into various fields that are there and I’m able to see this company was formed in this year and these were the original shareholders and if they are still the shareholders. You are able to see the original directors and if they are still the directors.”

He, however, notes that “these fellows are not ready to [effect the changes] because politicians have a lot of companies that trade in government in which they hide and URSB is complicit.”

He adds that one on the outside looking in “will never get details even if you pay.” He further contends that “those companies are already in touch with URSB.”

Experts also say another reason why Uganda has remained on the grey list is because it has failed to implement what the FAFT has termed as “a risk-based approach for supervision of the non-profit organisation [NPO] sector—locally known as nongovernment organisations (NGOs)—to prevent terrorism financing.”

The FATF revealed in its latest report that it “continues to monitor Uganda’s oversight of the NPO sector. Uganda is strongly urged to align the Terrorist Financing Risk Assessment for NPOs with the FATF Standards. This is needed to apply the risk-based approach to supervision of NPOs in line with the FATF standards to mitigate unintended consequences.”

Where is your faith?

The National Anti-Money Laundering Taskforce’s 2021 report titled ‘Terrorism Financing Risk Assessment For The Non-Profit Organisations Sector In Uganda’ made clear the finding that faith-based organisations (FBO) which operate Islamic religious schools known in Arabic as Madrassas and non-profit organisations that are involved in the governance sector pose a high terrorism financing risk.  

“Terrorism Finance [TF] investigations have been conducted by law enforcement agencies in Uganda involving FBOs that operate Madrassas for recruitment of mainly the youth for terror-related activities.

Charity organisations with links to the Allied Democratic Forces (ADF) rebels (not disclosed for fear of jeopardising investigations) are currently being investigated for their alleged involvement in TF activities,” the report reads in part, adding, “The assessment has found that bank accounts of four NGOs—all in the governance sector—have been frozen on account of suspected TF. These NPOs have been categorised as high risk on the basis of suspicious transaction reports. Criminal investigations are ongoing and at the same time, there are interlocutory court proceedings ongoing in relation to the same investigations.” 

The Anti-Money Laundering Task Force, which was led by the deputy Secretary to the Treasury—Mr Patrick Ocailap, concluded that there was limited regulatory capacity, as well as few competent authorities, to provide oversight and enforce compliance. It added that NPOs use cash in their transactions, which limits accountability and transparency in the use of funds.

Also, inadequate inter-agency cooperation and information sharing to support investigation and prosecution was illuminated.

The NGOs whose niche is governance and human rights advocacy dismissed the findings, saying the government is playing politics.

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“The problem is Uganda’s things are caught up in politics. So instead of working and addressing the real issues, they are working on things they think are the real issues, “Peter Magelah Gwayaka, the programme manager at Chapter Four told Saturday Monitor.

Chapter Four is one of the 53 organisations whose operations were indefinitely suspended last year by the National Bureau for Non-Governmental Organisations on account of failing to comply with the legislation covering their operations.  

What next?

Going forward, the Financial Action Task Force (FATF) has also urged Ugandan authorities to rapidly implement its action plan to address the strategic deficiencies. This includes developing and implementing risk-based supervision of financial institutions and Designated Non-Financial Businesses and Professions (DNFBP) such as churches and real estate.

“They want an institutional response by all actors that if you are on the same portal and money is deposited in the bank, then Financial Intelligence Authority, Bank of Uganda should know but we don’t have that,” Justice Lawrence Gidudu, the head of Uganda’s Anti-Corruption Court, said, adding, “Our law only requires them to report suspicious transactions. If banks are part of the schemes, which normally they are, they won’t report themselves.”

So, what needed to be done?

“We have to amend the Financial Institutions Act that sets up the Financial Intelligence Authority (FIA) such that it has powers to investigate and prosecute but right now, the FIA has no powers to investigate. It has no powers to prosecute a money launderer,” Justice Gidudu noted, adding, “The FIA can ask the police to investigate. It can only request the DPP (director of public prosecutions) to prosecute. It can order the police, but it can’t order the DPP.” 

Supervising DNFBP as FAFT requires could, however, prove difficult. 

“Lawyers are supposed to report suspicious transactions because they are accountable persons. But how many lawyers have reported such cases? Even churches are included as an accountable person, but how many churches can ask their believers who give them a lot of money for their sources of income? Who is supervising real estate because all the dirty money in Uganda is hidden in real estate,” a former senior prosecutor at the Anti-corruption Court, who has since gone into private practice, said on condition of anonymity.  

Officials from the FIA were not readily available to comment about the FATF’s latest findings.