Why Uganda will not get off the grey list any sooner 

A tweet by The Observer cartoonist Dr Jimmy Spire Ssentongo sparked fears that Uganda could be paying the price for being on the grey list of the Financial Action Taskforce (FATF).

This was after Ssentongo couldn’t exchange money more than $200 during his short stay in Budapest, Hungary.

He tweeted: “The forex agent asked for my passport. They then checked on their computer to see whether my country is either on the grey list or on the black list, I suppose. After checking, they said they could only exchange $200 for me daily.”

Ssentongo shared a similar situation in which his colleague also travelling with a Ugandan passport could not exchange dollars while in Norway.

“The forex agents arbitrarily refused to exchange for him. They could partly be ignorant or don’t want to get in trouble. I don’t know what the law says in such a case when a country is on a grey list,” he said.

When approached for a comment, the Royal Norwegian embassy in Kampala emailed back saying they didn’t have specific knowledge about the subject. Their email read in part:

“We will try to obtain information from the relevant authorities in Norway.”

They promised to revert once they have new information. They had not by the time we went to press. Countries on the FATF grey list have weak anti-money laundering and combating the financing of terrorism (AML/CFT) measures. Other countries on this list are United Arab Emirates, Turkey, Cameroon, among others etc.

Being on a grey list has huge implications on international trade in the form of high costs for electronic and financial transfers between commercial banks, large costs on processing letters of credit, and an increase in transaction fees and overseas remittances with reduced dollar inflows, among others.

The FATF is a global inter-governmental organization policy-making body established by the G7 countries of Germany, the United States of America, Canada, France, Italy, Japan, the United Kingdom, and the European Union states. The task force’s major purpose is to establish international standards, and to develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism.

In August 2022, the government of Uganda passed a raft of laws to strengthen the legal regime against money laundering and terrorism financing.

AUTHORITIES SPEAK

Interviewed, Jim Mugunga, the spokesperson of the ministry of Finance, Planning and Economic Development, said before Ssentongo’s incident, they had not registered any before. He said being on the grey list affects systems, not specific individuals.

“It means that the country is required to adapt to a heightened financial arrangement.” Mugunga noted.

When a country is grey-listed, there is heightened scrutiny on the sources of money for its citizens. Mugunga added that Uganda has acted on about 18 recommendations by the FATF.

“There are two pending issues which surround the training and capacity building of forex bureau agents; and the updating of the beneficial ownership registry by companies. In the interim, Ugandans travelling abroad should use their cards instead of making payments with cash. The government is doing all the necessary work with our partners to ensure Uganda is removed from the grey list.”

Lazarus Mukasa, the director of monitoring and analysis at the Financial Intelligence Authority, an entity mandated with combating money laundering, terrorism financing and proliferation, said some European countries in most cases consider grey-listed and blacklisted as the same.

“When a country is on the FATF grey list, other countries perceive you as causing a risk to them in terms of money laundering. When their institutions suspect that the funds being exchanged could have originated from Uganda (a grey-listed country), they get a perception of risk. Since Uganda is a high-risk area, institutions apply due diligence. They may decide to reduce the threshold of money that can be exchanged.”

BENEFICIAL OWNERSHIP

Since the Bank of Uganda is training forex agents across the country, Mukasa said, the remaining issue rotates around beneficial ownership.

“Several companies haven’t updated their beneficial ownership information. Beneficial ownership is key because it masks transparency. We are working with the Uganda Registration Services Bureau (URSB) to ensure that we are off the grey list by January 2024.”

Under the Companies (Amendment)Act, 2022, all companies must maintain a register of beneficial owner(s). The Act defines a beneficial owner as an individual that has final ownership or control of a company or an individual on whose behalf a transaction is conducted in a company, including an individual who exercises ultimate control over a company.

Despite Mukasa’s optimism, it is most unlikely that Uganda will be struck off the FATF grey list soon. There is little or no political will to motivate company proprietors and business owners, most of whom are politically exposed persons (Peps) to update the beneficial ownership registry.

Although each company must declare their respective beneficial owners, the declaration of the actual beneficial owners is at the discretion of the companies. If this loophole is exploited, a company might declare the wrong beneficial owner since it is an adherence requirement.

Since URSB is both understaffed and underfunded, it is unable to verify the authenticity of the reported beneficial owners of the more than 50,000 registered companies. It has to rely on the work of whistleblowers.

The Inspectorate of Government also grapples with limited financing yet it has the uphill task of combating corruption across the country. In most cases, it relies on the work of whistleblowers. In February 2021, the inspector general of government (IGG), Beti Kamya launched the drive for about 30,000 leaders to declare their income, assets and liabilities to the Inspectorate under the Leadership Code (Amendment) Act, 2021.

In March this year, the speaker of parliament, Anita Among, announced that 21 MPs hadn’t declared their assets to the IGG as of March 2023. No action has been taken against the legislators to date.

A source who preferred anonymity said beneficial ownership was political and tied to the power of external institutions to impose sanctions based on the targeted individual(s) being politically exposed person(s). She emphasized that several countries would rather not invite such intrusive actions on account of being part of a healthy international financial system.

“Some countries may see this as the use of the international financial system to insist on a particular form of Western democratic governance,” she said.

Drawing from the structuring of Uganda’s economy, any illicitly-acquired money that is invested in a wealth-creation activity is often excused.

She added: “The challenge for politicians in economies like Uganda is that even legally- acquired wealth can be funneled into political projects. Even when it is not, the rich are afraid of being targeted for that possibility. They take the pains to lessen the visibility of their assets.”

President Museveni has publicly sympathized with corrupt individuals, saying that they could be forced to take their money to other economies when harassed.

“The lifestyle audit is good but be careful because we are still lucky that our corrupt people are corrupt here. If they realize that their lifestyle is being audited, they will instead take what they stole abroad and it will be hard to track them,” Museveni said during the launch of the lifestyle audit in December 2021.

samuelmhindo@gmail.com