Kampala agrees to revise money laundering law

Uganda has agreed to revise its laws on illicit financial flows to allow for more collaboration with other governments and international agencies in the war against money laundering and terrorism financing.

The Anti-Money Laundering Act was passed two years ago following a directive by the East African Community to its members in the wake of growing terror threats and incidents across the region.

It however soon came in for criticism by the Financial Action Task Force (FATF) — the global agency responsible for curbing money laundering and terrorism-financing crimes — for allegedly hindering information-sharing by requiring other monitors and enforcers to sign memoranda of understanding with the government.

“The amendments are meant to rectify legal flaws highlighted by FATF,” said Sydney Asubo, the executive director of Uganda’s Financial Intelligence Authority (FIA). “These include relaxing conditions for information-sharing between Uganda and other countries by eliminating the requirement for memoranda of understanding and creating an open access window.”

The FATF cited the flaws at a meeting of the Eastern and Southern African Anti-Money Laundering Group held in Arusha in March. The meeting tasked Uganda to rectify these loopholes by the next review meeting, which is expected to take place between March and April next year.

READ: Uganda’s anti-money laundering regime weak

The requirement for MoUs with other FATF members was deemed to be inconvenient in cross-border investigations covering several countries.

Uganda has signed MoUs with 14 of more than 180 countries on the global agency’s register. Among these are African FATF member states Mauritius, South Africa, Namibia and Zambia.

Frequent bureaucratic delays experienced in bilateral negotiations could also pose a challenge in securing additional MoUs, frustrating Uganda’s efforts to tackle money laundering and terrorism financing, experts say. Deletion of the clause would boost cross-border surveillance.

The amendments provide for wider disclosure of beneficiaries of suspected illicit flows. Expanded disclosure rules will compel financial institutions to reveal personal details of company owners instead of ordinary legal documents.

The Anti-Money Laundering Act requires financial institutions to disclose beneficiaries of illicit funds but its guidelines allow them to declare basic but shallow legal information related to customers who own registered companies.

“Under the law, beneficiaries may be defined as companies executing financial transactions, and this provision could assist financial institutions such as banks to conceal clients’ identities,” Mr Asubo said.

“Amending this clause will compel concerned institutions to disclose names of company shareholders and enable us to unravel the identities of individuals who set up offshore companies with the intention of money laundering.”

Such information includes memoranda and articles of association submitted by shareholders. This provision has reportedly created a serious loophole that financial institutions have exploited to conceal identities of clients, especially those that transact through foreign offshore companies located in highly secretive territories, industry sources claim.

Tax evasion will also be added to the list of illicit financial flows, according to the amendments package. Though tax evasion offences are already covered under the East African Customs Management Act of 2004 and other tax laws, technocrats feel the addition of tax evasion in the category of illicit flows will indirectly reduce opportunities for tax evaders seeking to hide their proceeds in the financial system.
“Those who launder money are less likely to pay taxes,” said Moses Ogwapus, assistant commissioner for tax policy in the Ministry of Finance, Planning and Economic Development. “Through these amendments, the FIA will be compelled to pursue tax evasion and therefore minimise the prevalence of tax evasion schemes and loss of government revenue.”

OP The East African