Ugandans are struggling to make financial transactions in Europe

The Financial Intelligence Authority explains why new EU rules are biting

Kampala, Uganda | RONALDMUSOKE | Uganda’s Financial Intelligence Authority (FIA) has come out to allay the fears of some Ugandans who in recent weeks have shared their frustration via social media about their struggle to exchange money while on their travels within the European Union.

One Ugandan who recently travelled to Norway said their transaction had been rejected the moment they presented their passport while another one who attempted to exchange money in Budapest, Hungary, reported similar treatment.

Although these are isolated incidents and in fact, other Ugandans in Norway said they had not experienced such frustration, some financial intelligence experts think Ugandans could continue facing such treatment because of the country’s continued “Grey List” status by the Financial Action Task Force (FATF)—the global money laundering and terrorist financing watchdog.

Uganda has been on FATF’s “Grey List” since September 2016. Countries on this list have been noted to have deficiencies in their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) controls.

Lazarus Mukasa, the Director Analysis and Monitoring at the Financial Intelligence Authority, the government agency that is tasked with detecting and deterring money laundering and terrorist financing in Uganda, recently told The Independent that the Ugandans’ experiences could be “isolated actions.”

“The government has not received any official communication from any country that they are taking counter action against Uganda,” Mukasa told The Independent recently.

“I want to believe these are actions of individual financial institutions. There are no restrictions on transactions from Uganda and indeed like you have seen on social media, there are Ugandans who have been able to exchange in the same country. That shows that there is no limitation in inter-continental or inter-regional transactions; it’s individual institutions which are taking action in line with their state’s risk appetite.”

However, Mukasa said, when the EU notices a jurisdiction that is on the FATF’s “Grey List,” it automatically puts it on its “Black List.” “So, because of the perceived risk of a country, European financial institutions tend to come up with such restrictions,” he told The Independent on July 13.

“There are those financial institutions which will heighten their due diligence on transactions in their countries; there are those which will reduce the threshold within the risk and there are those which will just refuse to do transactions.”

Peter Wandera, the executive director of the Uganda Chapter of Transparency International agreed with FIA saying it is possible these are isolated cases.

Citing his own experience from his past travels, he told The Independent that there are indeed instances where one financial institution has demanded a list of documentation before a financial transaction (exchange of U.S. dollars to South African Rands) while another institution in the same country has made the same process less cumbersome.

The EU’s ‘Black List’

On May 17, this year, the European Commission adopted a “new delegated regulation” in relation to third countries perceived to have strategic deficiencies in their Anti-Money Laundering/Countering Financing Terrorism (AML/CFT) regimes that pose significant threats to the financial system of the European Union.

The Commission notes on its website that the identification of such countries is a legal requirement stemming from Article 9 of the Directive (EU) 2015/849 (4th anti-money laundering Directive) and is aimed at protecting the Union financial system and the proper functioning of its internal market.

The Commission says its revised methodology for the identification of these high-risk third countries is “robust, objective and transparent.”

“The objective is to identify jurisdictions which have strategic deficiencies in their national AML/CFT regimes which pose significant threats to the financial systems of the Union and hence proper functioning of the internal market,” the statement on the EU Commission’s website reads in part.

Uganda is on this list which also includes; Afghanistan, Barbados, Burkina Faso, Cayman Islands, DR Congo, North Korea, Gibraltar, Haiti, Iran, Jamaica, Jordan, Mali, Mozambique, Myanmar, Nigeria, Panama, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Trinidad & Tobago, the United Arab Emirates, Vanuatu and Yemen.

Uganda determined to get off “Grey List”

Even though Uganda has recently made efforts to tighten its anti-money laundering and terrorist financing laws, financial experts say the fact that Uganda is still listed on the FATF’s “Grey List” and the EU’s “Black List” shows its anti-money laundering and counter-terrorist financing regimes have not successfully put the FATF’s recommendations into practice.

This explains why Uganda is now under more scrutiny from global financial institutions. On June 17, this year, the FATF said Uganda would remain on the grey list that captures countries with deficiencies in their Anti-Money Laundering/Combating the Financing of Terrorism controls.

Early this year, the FIA said Uganda had been given until the end of June to make improvements or else more action would be taken against Uganda. The next action, FIA noted, would mean Uganda being put on the “Black List” where countries such as North Korea and Iran are.

The FATF expressed its concern that Uganda had failed to complete its action plan which included up to 22 action points, which expired in May 2022. However, the country got applauded for making progress in its evaluation of efforts to combat money laundering, terrorist financing, and proliferation financing.

It was noted that the country had established and put into practice policies and procedures for identifying, tracking, seizing and confiscating criminal proceeds and tools, as well as for showing that law enforcement and judicial authorities apply the money laundering offence in a way that is consistent with the risks that have been identified.

Still, the FATF wants Uganda to continue working on implementing its action plan to address its strategic inadequacies, including creating and implementing risk-based supervision of financial institutions and designated non-financial firms and professions.

Uganda has also been tasked with addressing technical flaws in the legal framework and ensuring that competent authorities have timely access to accurate and beneficial ownership information for legal entities in order to implement targeted financial sanctions related to proliferation financing.

Mukasa told The Independent that the government is determined to get off the “Grey List” this year. He said were it not for COVID-19 which ravaged the country between 2020 and 2021, Uganda would have got struck off the list by now.

“COVID-19 played a role in delaying Uganda’s implementation of the action plan agreed upon between the government and FATF,” he said, “Some of the actions required convening meetings, amending laws and even conducting inspections which we were not able to do. We failed to do so and Uganda was put on the grey list.”

“The action plan had 22 items which we were supposed to implement and post progress reports every four months to FATF.” However, Mukasa noted that, according to the last progress report, 20 of the 22 items had been addressed by the end of last year.

“Another one is supposed to have been addressed so we effectively have one item remaining for us to get off the Grey List,” he said.

“The remaining item is about our ability to access beneficial ownership information. Even if the country has a law on beneficial ownership following the recent amendment of the Companies Act, FATF is not convinced; the portion of entities that have submitted beneficial ownership information to URSB is still small.”

“We are required to increase the number of entities on the URSB platform but also improve accessibility of this data in a timely manner. Once we demonstrate that to FATF, we hope Uganda will be struck off the Grey List before the end of this year.”

Mukasa also told The Independent that there is still limited availability of beneficial ownership information which obscures transparency and there are also glaring gaps when it comes to Know Your Customer protocols in some financial institutions and mobile money service providers.

Mukasa was speaking on July 13 to a group of journalists during a training in Kampala on illicit financial flows which was organised by the Advocates Coalition for Development and Environment (ACODE), a Kampala-based public policy think tank.

Illicit financial flows are broadly defined as the movement of money and value from one country to another that are illicitly earned, illicitly transferred, and/or illicitly utilized. Money being transferred is considered illicit when the method of transferring it across countries is illegal (cash smuggling) or if it is the result of an illegal act (bribery, illegal logging of timber), organised crime, syndicated corruption, tax evasion, or illegal wildlife trade or if it is also used to finance an illegal activity such as terrorism.

Dr. Arthur Bainomugisha, the executive director of ACODE noted during the training that illicit financial flows cost Uganda about Shs 2 trillion annually and they occur via tax evasion, trade-based money laundering, smuggling, aggressive tax planning, transfer pricing, criminal activities such as poaching, illegal mineral trade, human trafficking and arms smuggling.

Financial intelligence experts say illicit financial flows are notoriously known for being a global challenge and if left unchecked, they have devastating effects on the economy including weakening governance, hampering domestic revenue mobilization efforts and impeding economic growth and development.