Uganda fighting financial grey list to protect her international investment portfolio

FATF, an intergovernmental organization that monitors the global financial industries for financial crime, examined Uganda’s progress in making the industry safer and still found it lacking, despite the approved action plan expiring in May 2022.

Actions required for Uganda to avoid the blacklist or improve from the grey list included new laws, policies, regulations, and institutional capacity to prevent or curb financial crime like money laundering, illicit financing, and terrorism funding.

A new deadline of June 2023 was issued to Uganda after failing to fulfill the FATF requirements.

“FATF strongly urges Uganda to swiftly demonstrate significant progress in completing its action plan by June 2023 or it will consider next steps if there is insufficient progress,” reads a FATF country assessment brief.

The Financial Intelligence Authority (FIA) vowed to exit the grey list by the end of this year.

Requirements

Fiona Nabaggala, the Director, Compliance said the FIA together with the Bank of Uganda and other authorities have handled most of the requirements. These include the legislation required, with only the outstanding issue being the submission of the beneficial ownership information which she expects to be completed next week. She says the grey-listing of Uganda is taking a toll on Uganda.

Last year, the government commenced the legislation process in response to the FATF recommendations and enacted the Ant-Money Laundering (Amendment) Act, to provide for penalties and other issues, the Anti-Terrorism (Amendment) Act to provide for financial sanctions, and the Companies (Amendment) Act providing for information of beneficial ownership.

These, she says, are also aimed at protecting the image of the financial industry and the country’s investment terrain.

When the June deadline was given, the Deputy Executive Director of Uganda’s FIA said, “We are optimistic to exit by year-end. The items remaining are very few, though the language/wording FATF used on a statement for Uganda has become much stronger.”

Nabaggala says that currently, there is hope that the country will soon be off the grey list, considering the achievements reached, including having in place sanctions against banks that do not comply.

Uganda fighting financial grey list to protect her International investment portfolio/Courtesy Pulse

Consequences

According to Nabaggala, being on a grey list usually results in high costs on electronic and financial transfers of commercial banks, large costs on processing letters of credit, and an increase in transaction fees and overseas remittances with reduced dollar inflows.

The grey list which is based on the readiness, or lack of it, of a country to prevent the global anti-money laundering and countering the financing of terrorism consists of countries with significantly weak enforcement regimes.

The global body, FATF urged Uganda to respond quickly to risk further punishment “The FATF expresses concern that Uganda failed to complete its action plan, which expired in May 2022. It strongly urges Uganda to swiftly demonstrate significant progress in completing its action plan by June 2023 or it will consider next steps if there is insufficient progress,” reads a FATF country assessment brief.

On what it means to be on a grey list, Edwin Nakaana Ssenyonyi called for the sensitization of Ugandans and those in responsible positions, about the consequences of being on the grey list.

According to him, it stifles investment flows into the country, delays international transactions, and even discourages remittances, and while it acts as a warning, jurisdictions like the European Union actually immediately blacklist the country, the reason it is hard to get money transfers from the EU into Uganda.

Nakaana says they have been working with the regulated financial institutions and the BOU has issued the list of dos and don’ts, with penalties prescribed. He adds, however, that the Bank is also developing its own list of penalties to make the regulation even stronger.

Recently Morocco and Cambodia were removed from the list after they successfully implemented new compliance measures, while North Korea and Iraq are on the black list.

Challenges

Michael Mugabi, the Chairperson, of the Uganda Institute of Banking and Financial Services said the Banking industry is at the centre of money laundering risks, hence the need to take the measures seriously.

He said there was a need to intensify training all banking staff about the crime as a way of insulating the industry.

Nabaggala said the main challenge to the industry in the fight against financial crime is the always-changing technology, which means there is a need for constant upgrades of systems.