SACCOs, MFIs put Uganda at risk by flouting anti-money laundering rules

Kampala, Uganda | THE INDEPENDENT |  The failure of Savings and Credit Co-operatives (SACCOs) and Microfinance Institutions (MFIs) to comply with Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) regulations poses a significant threat to Uganda’s financial integrity on the global stage.

Despite being obligated to adhere to AML/CFT regulations like banks, insurance companies, and NGOs, SACCOs and MFIs are largely non-compliant. According to the Financial Intelligence Authority (FIA), fewer than 20 of these institutions are registered with the authority, the first requirement for compliance.

As a member of the Financial Action Task Force (FATF), Uganda must ensure adherence to AML/CFT laws to maintain its international financial status. Compliance is evaluated during mutual evaluations, and Uganda’s recent removal from the financial grey list underscores the importance of maintaining progress in this regard.

Phionah Nabaggala, FIA’s Manager for Training and Outreach, emphasizes the need for compliance with international standards to avoid reverting to the grey list or facing the worst-case scenario of being placed on the black list. She stresses the importance of SACCOs and MFIs developing internal AML/CFT policies and training employees to adhere to them.

Based on the National Risk Assessment, SACCOs and MFIs are categorized as medium-high-risk entities for money laundering, necessitating tighter operational controls to safeguard the nation’s overall ranking. Under the Anti-Money Laundering Act, SACCOs and MFIs must register with FIA, develop internal AML/CFT policies, train employees, conduct due diligence on clients, report suspicious transactions, and appoint a focal person accountable to FIA. Non-compliance can result in significant fines and imprisonment.

Sheila Birungi, head of the legal department at UMRA, highlights the importance of addressing compliance gaps in SACCOs and MFIs, which handle a significant portion of Uganda’s financial transactions. UMRA is committed to integrating AML/CFT compliance into its regulatory frameworks for tier-four financial services providers.

Birungi emphasizes the vulnerability of SACCOs and MFIs, particularly in reaching underserved populations through Village Savings and Loan Associations (VSLAs). She stresses the need for tighter compliance measures due to the potential for even small transactions to facilitate illicit activities.   “Many of the people in the tier financial services sector are not aware of the intensity of AML/CTF.

For example, CTF goes up to just aiding someone to buy airtime of only 1,000 shillings, which can facilitate the process of terrorist activity. So compliance in this sector has to be very tight,” Birungi explained. Overall, enhancing compliance with AML/CFT regulations among SACCOs and MFIs is crucial for safeguarding Uganda’s financial integrity and preventing illicit financial activities.

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