IMPLEMENTING THE ANTI-MONEY LAUNDERING ACT,

PART I

By

Caroline Nalule

PARLIAMENT WATCH UGANDA

Introduction

The Uganda Anti-Money Laundering Act, 2013 marks Uganda’s effort to combat money

laundering in general. Uganda is part of the Eastern and Southern Africa Anti-Money

Laundering Group (ESAAMLG), which is made up of 15 countries. Until the passage of the

AMLA, Uganda was the only country in the group without an AML law.

Uganda’s AML is to a great extent modelled on the UN Office on Drugs and Crime model

legislation on money laundering and financing of terrorism (2005); and the Financial Action

Task Force (FATF) Recommendations or international standards on combating money-

laundering and the financing of terrorism and proliferation. It should be noted, however,

that Uganda’s AML law does not specifically address terrorist financing, as this is

criminalised and dealt with under Part V of the Uganda Anti-Terrorism Act, 2002.

Envisaged AML Legislation Implementation Challenges

1. Requirement of a highly coordinated system of customer due diligence (CDD)

The law places a great responsibility on accountable persons to implement customer due

diligence measures in preventing money laundering. For this to be effective, it needs to be

highly coordinated and regulated. So far the Bank of Uganda (BoU) had issued some

guidelines for financial institutions that are directly supervised by the BoU. Even with

financial institutions, however, the identification process is greatly hampered by the lack of

a national identification system. This is coupled with the fact that the Local Council I that

was relied on for proof of residence has become unreliable, since the elections have not

been held for over five years and the legality of those occupying the offices is in question.

The failure to hold elections has also created room for abuse of the system. Effective

implementation of reliable CDD measures can only happen if the challenges of the

identification processes are addressed. Hence the government needs to fast-track the

national identification system, in addition to other aspects that would help in proper

identification e.g. holding elections for LC I, ensuring proper and efficient handling and

management of records and databases such as land titles, company registers etc. Manual

systems of registration and data-keeping should pave way for electronic systems for ease of

access, making reference and networking.

For effective implementation of the AML law, there has to be a high level of coordination

and relevant information sharing among the financial institutions and other accountable

persons, competent authorities and supervisory bodies--something like the credit reference

bureau in place with financial institutions in Uganda. In fact, FATF recommendation 2

clearly states that ‘Countries should ensure that policy-makers, the financial intelligence unit

(FIU), law enforcement authorities, supervisors and other relevant competent authorities, at

the policymaking and operational levels, have effective mechanisms in place which enable

them to cooperate, and, where appropriate, coordinate domestically with each other

concerning the development and implementation of policies and activities to combat money

laundering, terrorist financing and the financing of proliferation of weapons of mass

destruction’.

There is insufficient coordination in Uganda, especially among the government institutions

and departments, especially those that qualify as accountable persons e.g. regulators and

monitors of the land registration system (e.g. the lands office, the district land boards, the

city authority), the companies registry, the URA etc. This should be a task for the various

supervisory bodies/authorities, and they too should have a forum where they can

coordinate AML measures. Unlike the South African Financial Intelligence Centre Act1 which

mandates the Centre to ‘monitor and give guidance to accountable institutions, supervisory

bodies and other persons regarding the performance and compliance by them of their

duties and obligations in terms of this Act or any directive made in terms of this Act’2, the

Uganda Financial Intelligence Authority (FIA) does not seem to have that function which

could have helped coordinate efforts of the supervisory bodies and accountable persons.

Indeed, owing partly to its ‘regular contact and feedback sessions with the accountable and

reporting institutions’3 and ‘regular compliance initiatives such as presentations to various

reporting institutions and sectors’4, the South African Financial Intelligence Centre saw an

increase in the number of reported transactions. Such a body is needed to coordinate the

efforts or the mandate should specifically be spelt out for the Ugandan FIA.

2. Efficiency of supervisory bodies and some that do not exist or are non-functional

Most of the accountable persons under the second Schedule to the Act do not have

supervisory bodies, or some may have, but their powers do not extend to monitoring money

laundering (e.g. The Law Council). For some that have well-established supervisory bodies

such as the BoU, the Capital Markets Authority and the Insurance Commission, their

supervision may be lax or inadequate to ensure effective implementation of AML measures.

In assessing Uganda’s observance of standards and codes on AML and combating the

financing of terrorism, the World Bank team noted that ‘although both the Capital Markets

Authority and the Insurance Commission have issued AML guidelines for their respective

sectors, they have not assumed their AML/CFT regulatory and supervisory obligations’5. In

1 Act 38 of 2001 2 Ibid, Section 4(c) . 3 Goredema, C, ‘Confronting Money laundering in South Africa: An Overview of Challenges and Milestones’ in Goredema, C (ed), Confronting the Proceeds of Crime in Southern Africa (ISS, 2007) 79-80. 4 Ibid. 5 World Bank. Uganda: Report on Observance of Standards and Codes – FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism, (The World Bank, 2005), 6.

the same report it was said of the BoU that it had not made use of the Financial Institutions

Act to enforce the detection and deterrence of money laundering6.

Accountable persons (such as real estate agents, mobile money vendors, dealers in precious

metals and gems) that are not regulated at all, will be particularly challenging. Bringing such

people within the supervisory ambit of the law would require that they are organised and

registered so that they can be easily monitored.

Laws or regulations will have to be made or amended to ensure that all accountable persons

report to an established and legally recognised supervisory body. Those supervisory bodies

without such a specific AML mandate should be apprised of their responsibilities, and if

necessary, amendments made to the relevant laws. In addition, they should be given

technical assistance to develop AML guidelines for their sectors.

3. Training needs

The staff of the FIA need to update their training as they are dealing in an area which

develops at a very fast pace. All accountable persons will doubtless need training so as to

know their responsibilities and obligations under the Act. In Zimbabwe, for instance, it was

noted that law enforcement agencies including the judiciary were more comfortable

prosecuting predicate offences than money laundering itself despite a law being in place7.

Hence training in AML was highly recommended. Just like was done in preparation for the

prosecution of international crimes under the ICC Act, special personnel should be

established within the Uganda Police Force, the Directorate of Public Prosecutions, and the

Judiciary. Officers of these units should be specially targeted for advanced and specialised

training in the investigation and prosecution of AML.

Furthermore, in order to get cooperation from the public, there should be a public

awareness strategy so that they too can know about the dangers of money-laundering and

readily co-operate with the competent authorities.

Although the AML law lists as one of the FIA’s objectives, to ‘enhance public awareness and

understanding of matters related to money laundering’8, there is no specific function to

train personnel or educate the public. The training function is clearly spelt out for the Kenya

Financial Reporting Centre which ‘shall design training requirements and may provide such

training for any reporting institution in respect of transactions, record-keeping and

reporting obligations in accordance with the provisions of this Act’. The danger of not

6 Ibid. 7 7 Fundira, B. ‘Money Laundering in Zimbabwe 2004-2006’, in Goredema, C. (ed), note 4, 70. 8 Cl. 20 (c) of the Anti-Money Laundering Bill.

including this important function is that it may not receive any budgetary allocation, or it

may receive very little since it may not be considered a core function of the Authority.

4. Resource and other logistical facilitation

Implementation of the law will definitely require a great amount of resources. It has been

noted, and rightly so, that ‘the capacity and resource constraints of low-income countries

make it particularly difficult for them to implement all the necessary measures

simultaneously’9. It is, therefore, important that priorities for implementation are set.

In its interpretive note to recommendation 29 on Financial Intelligence Units (FIU), the FATF

provides that the ‘FIU should be able to obtain and deploy resources needed to carry out its

functions, on an individual or routine basis, free from any undue political, government or

industry influence or interference, which might compromise its operational independence’.

The FIA, in order to function effectively, will have to be very well-resourced, in terms of

staff, equipment, and finances, to mention but a few. Considering that it is dealing in an

area where the perpetrators usually have plenty of money, the FIA officials will have to be

well remunerated so as, firstly, to attract competent and qualified staff, and secondly, so as

not to be corrupted by the very people that the law is meant to target.

One of the positive provisions of the law is that the FIA will be in charge of administering the

the recovery of assets and in doing so, it shall pay off all payments stipulated by the law, and

the remainder may be used to fund its operations (See S.100 of the Act). In South Africa,

where there is a similar provision for the Assets Forfeiture Unit (AFU), some analysts have

linked the motivation and success of the AFU to that clause or provision.10

5. Composition of the Board

The Board’s composition is mainly government officials and only one member of the private

sector appointed by the minister (Section 25 (1) of the Act). There is no transparency in the

appointment of the Chairperson of the Board as this is left to the Minister’s discretion

(Section 25 (2) of the Act) with no guiding or selection criteria whatsoever. This may create

room for selection of an incompetent chairman or a political stooge, with no worthwhile

qualifications in AML matters. The Kenyan law seems to have a slightly better and more

transparent criterion by providing that ‘the Chairperson shall be appointed by the Minister

from among members of the Board appointed under paragraphs (f) to (h)’,11 that is, the

Chairman, Kenya Bankers Association; the Chief Executive Officer, Institute of Certified

Public Accountants of Kenya; and two other persons appointed by the Minister from the

9 Moshi, H. Challenges of Fighting Money Laundering in Southern Africa (ISS, 2007) 7. 10 Goredema, C (note 4 above) 88. 11 Proceeds of Crime and Anti-Money Laundering Act, Cap. 59B Laws of Kenya, section 49(1)(a).

private sector who shall have knowledge and expertise in matters relating to money

laundering.

Furthermore, save for the member of the private sector, all other members of the Board are

public or civil servants who are accountable to political persons or appointees in their

various departments. Hence they may not have independent opinions other than those

voiced by their ministers or accounting officers, which is a worrisome situation. The law

specifies the members of the Board from various government departments or agencies, but

it does not set a level of competence of the members or requirement that they are

knowledgeable in AML, hence a junior and may be poorly informed or incompetent officer

of a ministry or government department may sit on the Board and be required to formulate

policies of the FIA. This composition of the Board does bring into question the seriousness

and level of competence of the Board members, which could adversely affect the effective

functioning of the FIA and the implementation of the law itself.

In case there is room for this to be rectified in the regulations, then the qualifications or

ranks of the members of the Board should be specific. The Kenya law specifically mentions

which officials of government departments shall sit on the Board e.g. the Permanent

Secretary of the Ministry responsible for Finance, the Governor, Central Bank of Kenya; the

Attorney-General, and the Commissioner of Police. Looking at this composition alludes to

the seriousness the government is attaching to AML, and in this regard, the proposed

Uganda FIA Board is greatly lacking.

The composition of the Board, as it is, does not demonstrate the requisite level of

independence nor competence to deal with AML issues. Neither does it reflect the cross-

section of accountable persons or supervisory bodies on whom the Bill places obligations

and responsibilities. In my view, there is a possibility of having a weak Board that may not

necessarily serve the purposes of the Act.

6. Independence of the FIA and the ministerial powers

Section 26(4) is somewhat ambiguous and seems to leave so much at the discretion of the

Minister in such a way that the independence of the Board is called into question. The

Minister under Section 25(2) can only appoint the Chairperson of the Board and a member

from the private sector. Other members of the Board are representatives of specified

government departments or ministries. Since the Bill is silent on which official of the

government department or ministry should be on the Board, a possible interpretation could

be that the representatives so nominated may be easily rotated. What Section 26(4) does is

to give sweeping powers to the Minister to remove from office a Board member in whose

appointment or nomination to the Board, the minister had no say. This could cause some

friction among the various government departments represented on the Board and the

Minister. A probable interpretation of Section 26(4) would be that the Minister only has

power to remove the only two members of the Board that he or she directly appoints i.e.

the chairperson and member of the private sector.

The Director-General seems to be beholden to the Minister who has the power to appoint

and remove him or her. Although the appointment is done in consultation with the Board

and the removal is done on recommendation of the Board, the Minister does not seem to

be accountable to any authority or body for exercising his powers conferred upon him or

her by the law. In Kenya, the Director of the Finance Reporting Centre (equivalent of the

FIA) is ‘recommended by the Board and approved by the National Assembly’12. The Minister

only does the appointment after the approval. Not only does this process subject the

selection of the director to a more democratic scrutiny, but there is an implication therein

that in the event of the Minister exercising his or her powers to remove the director or the

deputy, the minister would have account for this before the National Assembly.

In view of the Minister’s powers over the appointment and removal of Members of the

Board and the director general/deputy director general, one wonders how independent the

FIA will be especially from political interference. Will the FIA have the courage and

independence to proceed against political figures with the Minister wielding such powers

over it?

7. Timeliness of the procedures and processes in Uganda system, both financial and

JLOS

In dealing with money laundering matters, in some cases, if not most, the authorities have

to act with speed. As Goredema says, ‘reporting institutions should be able to act speedily

to freeze activity on suspect accounts, or stop suspect transactions such as sales of real

estate, pending investigation. Because of the potential for wrong decisions to be made with

serious consequences for innocent parties, the capacity to investigate should be good’.13

The issue here is whether the Ugandan financial reporting systems and justice, law and

order processes are adequate to deal with the speed required.

One of the options to consider, taking into account the intricacies and advanced means used

by money-launderers, would be if the money laundering should be handled in a special way

as far as the justice system is concerned. As I have mentioned earlier, this would involve

creating specialised units within the justice system (that is investigators, prosecutors and

courts) that would be capacitated to deal with AML issues in a speedy and focussed manner.

8. Sanctions for supervisory bodies that fail to comply with the law 12 Section 25(2) of the Proceeds of Crime and Anti-Money Laundering Act, Cap. 59B, Laws of Kenya. 13Goredema, C. (note 4 above), 89.

The Act sets out penalties for accountable persons that fail to do their duty (), but there is

no provision that would compel supervisory bodies to fulfil their obligations or implement

their responsibilities. Owing to this laxity, supervising authorities may not issue any

directives in their respective sectors. This may turn out to be true considering that this is a

totally new territory for some of these sectors and they may be reluctant to take on an

intrusive law enforcement role in the respective businesses. The imposition of fines on such

lax supervisory bodies could be one way to compel them to take their responsibilities more

seriously. This should, however, only come into effect if these bodies have received the

requisite training and education to enable them carry out their responsibilities.

9. Mainly cash-based economy and non-use of banking facilities

Uganda is mainly a cash-based economy with only a fraction of the population using formal

financial sectors. According to Dr. Louis Kasekende, ‘only 38% of Ugandans receive financial

services from both formal and informal sectors moreover when drilled down further only

20% use formal sector financial institutions i.e. commercial banks Tier 1, credit institutions

(Tier 2) and microfinance Deposit Taking Institutions (Tier 3). This means that nationwide,

62% of Ugandans are not served by any financial institution or groups (formal, semiformal

or informal)’.14Considering that financial institutions seem to be the main reliable

implementers of law, in effect, transactions by majority of the population may remain

unmonitored. This will be more so, if the other accountable persons are not organised

enough or supervised sufficiently as to properly fulfil their obligations under the law.

As Dr. Kasekende suggests, in order to attract more of the population into the financial

sector, ‘banks, credit institutions and microfinance could open branches even where they

are unprofitable in the interim so long as they could be funded by other profitable branches;

extending mobile banking services, set up agencies etc.’15 In South Africa, the banks

introduced a system of ‘low-cost banking specifically designed for unbanked South

Africans’16 and this increased the number of persons covered by financial institutions.

Otherwise, special attention will have to be put on those sectors or accountable persons

where money is most likely to be laundered, such as real estate and casinos, so that these

tighten their AML preventive measures.

10. Large amounts of money targeted, isn’t threshold too high?

14 Dr. Louis Kasekende, ‘Improving Rural Access to Finance in Uganda’, Opening remarks at the official launch of the Uganda Rural Challenge Fund, Kampala, 19th April 2013 available at https://www.bis.org/review/r130926f.pdf accessed on October 22, 2013. 15 Ibid. 16 Goredema, C. (note 4 above) 82.

Section 8(1) imposes mandatory reporting where a transaction involves domestic or foreign

currency exceeding two thousand five hundred currency points, that is exceeding UGX

50,000,000/-. On the one hand, this may be putting into consideration persons who

honestly transact and the law would not like to make business unduly cumbersome on their

part, but on the other hand, the threshold may be too high for some money launderers who

are likely to manipulate the system to their advantage. In other words the 2500 currency

point mark may easily be avoided by money launderers and make the crime hard to detect.

Section 8 tries to address this challenge, but only in part- it is to the effect that multiple

transactions exceeding the prescribed amount will be treated a single transaction if they are

undertaken by one person in any one day or such other period as the Minister may

prescribe. Now if, proceeds of crime have already been layered in various places or even

financial institutions, their movement may be hard to monitor more so if the financial

institutions or affected accountable persons are not working together. This challenge only

highlights the importance of having a network through which banks and other financial

systems can share some of this information. Where there is good coordination among

financial institutions, in particular, AML measures will be more effective.

11. Corruption

In 2012 Corruption Perceptions Index published by Transparency International, Uganda was

ranked 130 out of 174 countries placing it among the 45 most corrupt countries in the

world. Perceptions of corruption in Uganda’s public sector are quite high and these do not

spare the judiciary and the police, which has been seen as the most corrupt institution over

the years. One wonders whether they will manage to uphold their integrity in the handling

of money laundering where there are huge sums of money involved. These officials could

easily be paid off, in spite of corruption being one of the predicate offences for money

laundering. In fact, in the latest Human Rights Watch report on corruption in Uganda, it has

been noted that ‘[in] some Anti-Corruption Court cases involving well-connected individuals,

senior officials have directed prosecutors to delay prosecution or prematurely try a case with

incomplete or weak evidence. Investigators, prosecutors, and witnesses involved in such

cases have been the targets of threats and requests for bribes’.17

Whether the anti-money laundering law enforcement measures can be kept corruption-

proof in Uganda, is highly doubtable, but efforts can be made to this end. Officers of the FIA

and those involved in the investigation and prosecution should be well-remunerated and

also afforded independence free from political interference. This, however, cannot be done

on a parochial scale with regards to AML, but the government should demonstrate

commitment to fight corruption by taking its obligations seriously. Anti-corruption

institutions must be supported and empowered to carry out their work objectively and 17 Human Rights Watch, “Letting the Big Fish Swim”: Failures to Prosecute High-Level Corruption in Uganda (HRW, 2013) 4.

impartially; and all those accused of corruption should be prosecuted without fear or

favour.

Conclusion

Adoption of an AML law and its implementation are definitely not simple undertakings

especially for poor and under-developed countries like Uganda. Some if not most of the

provisions may appear too ambitious in relation to what is actually pertaining on the

ground; and quite frankly, there are a lot of challenges that will hamper implementation of

the law. Some of these will require complex and integrated solutions that need to be dealt

with at a multi-sectoral level, but what is most important though is that there is political will

to implement the law. Priorities of implementation should be identified at the start so that

the rolling out of the law should start in a systematic manner. It requires a lot of resources,

but with the technical and financial assistance from international partners quite a lot can be

achieved.