by Rachel Mwendwa and Abdul Buhari
Session Topics on the Training on Illicit Financial Flows and Anti-Money Laundering
Playing a pivotal role in the capacity building of local communities, the International Lawyers Project, in partnership with Neil Donovan and Jaspreet Nandra of Ashurst, conducted a training on how to combat illicit financial Flows and anti-money laundering for the Western Uganda Initiative against Illicit Finance and key stakeholders from other African countries. The training aimed to empower individuals by providing them with the crucial tools and information necessary to combat environmental crimes and corruption in the Ugandan context.
Overview
Between February 2020 and February 2024, Uganda was placed on the Financial Action Task Force (FATF) Grey List despite its implementation of enabling legal frameworks such as the Anti Money Laundering Act 2013 and the Anti Money Laundering (Amendment) Regulations 2022. Uganda loses an estimated UGX2 Trillion (or approximately £422 billion) to illicit financial flows and the figure is likely to increase. In 2020, the Uganda Revenue Authority acknowledged that fraud and corruption were interfering with the taxes collected on infrastructure projects. In response, it took an unusual step: creating an anti-money laundering unit that would work with tax investigators, the Uganda National Roads Authority (UNRA), the Financial Intelligence Agency (FIA), and the Directorate of Immigration and Passport Control, which were established to collect actionable intelligence to investigate and prosecute those individuals and entities involved with money laundering.
The training began by looking at the domestic and regional challenges being faced by Uganda, including the proliferation of organised crimes, financial secrecy and lack of transparency, and illicit wildlife trade.
I. Organised Crime Risk in Uganda
Uganda has a high prevalence of tax crimes, including tax evasion and evasion of duties. In addition, investing in offshore accounts outside Ugandan borders and government corruption - such as bribery and falsification of licenses and original certificates - pose serious risks to the financial and overall credibility of Uganda in the financial sector.
Human rights violations, such as people trafficking, also contribute to illicit financial flows. In recent years, Uganda has been at the centre of this trafficking, where human beings are used as a source of financial exchange domestically and across borders. Linked to illicit financial flows, terrorist financiers use loopholes within the system to facilitate the exchange of money resulting in a surge in terrorism and armed insurgency within the country.
II. Financial Secrecy and Lack of Transparency
Secrecy, discretion, and evasion spill into the financial realm, with perpetrators intentionally avoiding personal disclosure of the nature of financial transactions and the sources of funds. Capitalising on their vast networks, these actors, who have knowledge of money laundering processes, take advantage of the financial culture of maintaining several bank accounts and foreign accounts, which leave no traces of questionable transactions.
III. Wildlife at Risk
Illicit wildlife trade is a transnational threat within the African region which costs Uganda an annual average of US$509 million in illicit outflows.[1] Ivory and pangolin scales are the common animal produce trafficked from Uganda, with the illegal possession of these items often stemming from poaching. Changing their form into powder conceals the scales for easy transportation through porous borders, and enables unlicensed and undocumented trading.
Payment flows through excessive cash deposits and withdrawals, as well as the use of common containers, consignees, transporters, clearing agents or exporters (as seen in other suspected wildlife trade cases) are red flags that need to be countered in order to combat illicit trade.
The training highlighted a 2022 conviction by the Entebbe Magistrate Court where two Indian nationals were convicted for unlawful possession of protected wildlife specimens and attempted export of ivory without permit. They were each handed a sentence of UGX40 million (approximately £8,400) or eight-year imprisonment with deportation after service of sentence. However, despite such convictions, illicit wildlife trade still persists.
The training then moved on to discuss the risk mitigation measures and international best practices that can be used to address the challenges in the Ugandan context.
Risk Mitigation Measures and Best Practices
The local challenges in Uganda can be addressed by some risk mitigation measures which include risk transfer, avoidance, acceptance, and monitoring through the effective implementation of the following:
Detection and identification of money laundering;
Effective international cooperation;
Legal framework to fill legislative gaps; and
Private sector supervision and public sector collaboration.
Cooperation on anti-money laundering efforts and combating trafficking is crucial for global security and financial integrity. Countries collaborate through various mechanisms such as bilateral agreements, regional organisations, and international conventions like the United Nations Convention against Transnational Organized Crime (UNTOC) and its protocols. These agreements facilitate information sharing, extradition of criminals, and joint operations to combat money laundering and trafficking.
Uganda will also benefit from aligning legal frameworks and regulatory standards with international anti-money laundering and anti-trafficking standards, as set forth by organisations like the FATF and the United Nations. Harmonisation facilitates cooperation with other countries by ensuring consistency in legal definitions, enforcement mechanisms, and international cooperation provisions.
Amongst the key players in anti-money laundering efforts within a country are their respective national Financial Intelligence Units (FIUs) which are responsible for receiving, analysing, and disseminating financial intelligence to law enforcement agencies. International cooperation among FIUs enables the exchange of information on suspicious transactions and illicit financial activities across borders. Uganda’s FIU is the Financial Intelligence Authority.
In order to address legislative gaps in the fight against money laundering and trafficking, countries can enact or strengthen their legal frameworks through the implementation of beneficial ownership transparency laws. This will require companies, trusts, and other legal entities to disclose their beneficial owners to competent authorities. Transparency in beneficial ownership helps prevent the misuse of corporate structures for money laundering and enables authorities to trace illicit funds to their ultimate beneficiaries.
Another game changer is the empowerment of law enforcement agencies to seize and confiscate assets derived from money laundering and trafficking offences. Complementary to these efforts, legislation should be enacted to protect whistleblowers who report money laundering and trafficking-related offences. This will provide legal safeguards against retaliation and discrimination, along with mechanisms for anonymous reporting and reward incentives for whistleblowers.
For businesses, it is crucial to have a customer database with detailed information on the address and the sources of funds. Employing an anti-money laundering officer to implement the anti-money laundering/ combating the financing of terrorism regime would also play a pivotal role in reporting suspicious activities, especially when there are consistent transactions involving questionable large sums of money. Building a zero-tolerance culture on anti-money laundering will go a long way in creating a positive value-based environment coupled with the enforcement of strict repercussions for breaches of the same.
This training was an important step for these participants both from Uganda and the other African countries in developing their understanding of the contextual and legal environment in which they are operating. It is hoped that the delegates are now better informed and empowered to advocate for national strategies that aim to improve their respective anti-money laundering/ combating the financing of terrorism regimes.
[1] Disrupting Illicit Wildlife Trade, Uganda Conservation Foundation, https://ugandacf.org/projects/disrupting-illegal-wildlife-trade-through-financial-investigation/