The Independent Uganda: You get the Truth we Pay the Price
Upcoming regional meeting highlights need for implementation of Risk Based Approach from a CSO perspective
COMMENT | ERIC ODONGO | Uganda will next month host the 49th Task Force of Senior Officials’ Meeting of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).
This event highlights the need for increased transparency in the implementation of the Risk Based Approach (RBA) to Anti-Money Laundering and Counter-terrorism Financing ((AML/CTF). It also highlights the need for intentional coordination between the government and Non-Profit Organisations (NPOs) in the fight against Money Laundering and Terrorism Financing (ML/TF).
On January 23, 2025, the parliament of Uganda passed an amendment of schedule 2 of the Anti-Money Laundering Act 2015 that removed Non-Governmental Organizations (NGOs), Churches, and other NPOs from the list of accountable persons in the fight against money laundering.
This was in line with one of the political commitments by the government of Uganda on the advice in 2023 of an evaluation team from the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog.
In February 2024 at a sitting at its headquarters in Paris, France, the watchdog removed Uganda from its list of countries with deficiencies in anti-money laundering (AML) and counter-terrorist financing (CTF) systems usually referred to as “the grey list”. This was confirmation that Uganda’s AML/CTF systems have improved.
Being on th grey list is detrimental to a country’s risk profile as it becomes less attractive for foreign direct investment and experiences increased transaction costs due to the requirement of enhanced due diligence by counter parties, restricted cross border transactions, increased cost of public debt due to high interest rates, and the need for de-risking by correspondent banks and other key relationships.
The International Monetary Fund in 2021 estimated that, following a country’s grey listing, its capital inflows on average declined by 7.6% of GDP, Foreign Direct Investment by 3% while other investments declined by 3.6%.
The de-listing followed on-site visits by the FATF inspection team and subsequent review of the country’s legal and regulatory landscape around the implementation of 40 recommendations.
An update in 2012 on recommendations aimed at strengthening global safeguards and providing governments with stronger tools to act against financial crime increased emphasis on the Risk Based Approach (RBA) to AML/CFT, especially in relation to preventive measures and supervision.
The RBA is considered an ‘essential foundation’ of a country’s AML/CTF framework; making it an over-arching requirement applicable to all relevant FATF Recommendations. It is not optional, but a prerequisite for the effective implementation of the FATF Standards. According to FATF, the RBA entails countries, competent authorities and financial institutions identifying, assessing and understanding the ML/TF risks to which they are exposed and taking AML/CTF measures commensurate to those risks as a means of mitigating them effectively.
In Uganda RBA involves an analysis of the effect of ML/TF risks as a basis of deriving risk-sensitive AML/CTF measures in line with recommendation 1 that sets out the scope of the application of the RBA.
Uganda’s AML/CTF regime defines who and what is subject to AML/CTF whereby additional institutions, sectors or activities that pose a higher risk of ML/TF are included on the list of those formally stated under the FATF recommendations. This framework also urges exempting certain institutions, sectors or activities from some AML/CTT obligations where specified conditions are met, such as an assessment that the ML/TF risks associated with those sectors or activities are low.
The designation of Non-Governmental Organizations (NGOs), Churches, and other NPOs as reporting entities in the the Anti-Money Laundering Act contrasted with recommendation 8 since NPOs do not have customers to whom they provide services but instead have donors whose funds pay for the NPOs’ activities.
The underlying reason for their removal from the list of accountable persons is to entrench more the RBA approach into Uganda’s AML/CTF regime. For the NPOs and the country at large, a complete transition into the RBA approach presents both opportunities and challenges.
The biggest opportunity in the RBA is that it allows countries, within the framework of the FATF requirements, to adopt a more flexible set of measures to target their resources and efforts more effectively and apply preventive measures that are commensurate to the nature of risks.
In line with Uganda’s constrained fiscal space and bloated list of unfunded priorities, targeting resources to relevant areas enhances efficiency in the country’s actions towards combatting AML/CTF.
Internally for the NPOs, this approach facilitates self-based assessment on compliance through the consideration of factors like size and structure of the NPO, type of activity, self-regulatory measures, internal controls, and governance measures, location of the activity and local conditions where programming takes place. Other considerations include NPO procedures for engaging with partners, vendors, beneficiaries, etc and the nature and volume of financial transactions.
As pointed out by FATF, RBA is not an assurance to a successful AML/CTF regime but has largely transformed various jurisdictions, developed and developing alike, in the fight against ML/TF risks.
In the context of Uganda, we are still challenged in some areas in form of limited awareness on potential vulnerabilities to ML/TF risks by NPOs. There is also inadequate cooperation, coordination and information sharing among NPO supervisory authorities which has increased the compliance burden on the side of NPOs. The supervisory bodies are also yet to engage NPOs in the development of best practices in response to TF risks and vulnerabilities.
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ERIC ODONGO, ECONOMIST AT CIVIL SOCIETY BUDGET ADVOCACY GROUP
