UGANDA: 2007-2008 INTERNATIONAL NARCOTICS CONTROL STRATEGY

UNCLAS KAMPALA 001774 SIPDIS SIPDIS SENSITIVE DEPARTMENT FOR INL, S/CT, AND EEB JUSTICE FOR AFMLS, OIA, and OPDAT TREASURY FOR FINCEN E.O. 12958: N/A TAGS: EFIN KCRM KTFN PTER SNAR ASEC UG SUBJECT: UGANDA: 2007-2008 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT, PART II REF: STATE 138226 KAMPALA 1690 KAMPALA 1302 ¶1. (SBU) Uganda is not a regional financial center or a major hub for narcotics trafficking and terrorism financing. Money laundering takes place in Uganda, but the GOU has no systematic research on its scope and magnitude. Recent efforts by GOU officials to address the smuggling of counterfeit goods into the country (refs B and C) have countered related money laundering violations. Narcotics trafficking groups, criminals, and organizations associated with terrorism have been a major concern historically and are not thought to participate in money laundering activities. Instead, Bank of Uganda (BOU -- Central Bank) and Finance Ministry officials said that money laundering was linked to corruption by Government of Uganda officials. Also, Uganda's weaknesses in monitoring financial transactions, particularly along the border, and the cash economy could make the country vulnerable to more advanced money laundering activities. Uganda's proximity to Somalia, Sudan, Kenya and Tanzania, countries subject to terrorist activity, could lead to spillover activities here. - - - - - - - - - - - - - - - - - - - - - Anti-Money Laundering Legislation Stalled - - - - - - - - - - - - - - - - - - - - - ¶2. (SBU) The Financial Action Task Force (FATF),comprised of multiple Ugandan ministries and chaired by the BOU, worked with technical advisors from the U.S. Department of Treasury to draft a comprehensive Anti-Money Laundering (AML) bill based on the FATF's previously drafted Forty Recommendations on Money Laundering. The FATF completed the draft AML bill in 2003, and the cabinet approved the bill in January 2005, but the Finance Minister has not presented it to Parliament. Without the AML laws, the GOU cannot create an operational Financial Intelligence Unit (FIU) or pursue other anti-money laundering measures. In separate meetings, BOU and Finance Ministry technocrats told Econoff that high-level GOU officials were stalling the AML bill intentionally because it would help "honest authorities clamp down on the corruption that is integral to politics in Uganda." One cabinet-level minister asked for a complete study on the effects of money laundering on the Ugandan economy before the Executive could present the laws to Parliament. Assistant Commissioner of Macrofinance Michael Olupot-Tukei explained that this was an impossible request and that the GOU has never even attempted to write the report. The 2006 elections resulted in a new Finance Minister, Ezra Suruma, who reportedly disagreed with "policy procedures" regarding the AML bill, which has further delayed its presentation to Parliament. During the budget presentation at Parliament in June, Suruma assured MPs that the bill would be presented to Parliament soon, but he did not give an approximate date. ¶3. (U) The new AML bill provides for an independent FIU that would report to the Finance Minister. The legislation also proposes to develop an anti-money laundering board to oversee the national strategy on money laundering, criminalize money laundering, and facilitate the investigation and prosecution of money laundering offences. ¶4. (U) In the absence of anti-money laundering legislation, the BOU issued guidelines to financial institutions in December 2002, to foreign exchange (forex) bureaus in September 2003, and to insurance companies in 2004. The guidelines stipulated that banks, forex bureaus, and other financial institutions comply with "Know Your Customer" principles such as instituting internal control measures and reporting suspicious activities to the BOU for further investigation. According to the BOU's assistant Legal Counsel Titus Mulindwa, the BOU strived to enforce "Know Your Customer" guidelines and conducted regular site inspections at financial institutions. Barclays Bank (now partnered with Nile Bank) and Stanbic Bank opted to implement policies based on the United Kingdom's anti-money laundering legislation. Other international banks such as Citibank and Standard Chartered have formulated similar anti-money laundering guidelines that meet international standards. The Bank of Uganda supervises cash couriers, but it does not have the capacity to monitor cross border financial transactions. ¶5. (U) As for the non-banking financial institutions and intermediaries, the GOU has implemented only a few controls. The Capital Markets Authority (est. 1996) supervises the Uganda Stock Exchange, stock brokerage firms, and broker/dealers. The Uganda Insurance Commission supervises insurance companies, insurance brokers, and insurance agents. Lawyers and accountants are considered self-regulating organizations (SROs) under Ugandan law. Other entities such as casinos, real estate agents, vehicle importers, and precious metal dealers are neither self-regulating nor supervised. For purposes of compliance with the anti-money laundering requirements, section seven of the AML bill proposes that the FIU supervise these non-regulated/regulating entities. ¶6. (U) The BOU closed eight foreign exchange bureaus in October 2006 for failing to meet BOU requirements of performance and adequate capital. Several bureaus opened in 2007, bringing the number of licensed foreign exchange bureaus in the country up to 96 from 81 in 2006. - - - - - - - - - - - - - - - - - - Whistleblowers Need More Protection - - - - - - - - - - - - - - - - - - ¶7. (SBU) Whistleblowers, including professionals such as bankers and regular citizens, who report suspicious money transfers have some protection under the law with respect to their cooperation with law enforcement entities. The AML bill provides additional whistleblower protection. The Ministry of Ethics and Integrity was drafting a Whistleblowers Bill, which would provide for broadQ protections of individuals who report incidents of corruption to the authorities. There is no proposed date for the introduction of this law into Parliament. - - - - - - - - - - - - - - - - - - - - - - - - - An Informal Economy Facilitates Money laundering - - - - - - - - - - - - - - - - - - - - - - - - - ¶8. (SBU) BOU officials said that money laundering derived primarily from corruption, but also from misappropriation of public funds and foreign assistance, abuse of religious charities, land speculation, car theft, arms and gem smuggling, public procurement, and/or exchange control violations. In addition, money laundering results from Uganda's active informal economy. Many Ugandans working abroad use a cash-based, informal remittance system to send money back to their families. According to the World Bank, annual remittances for 2006 totaled USD 845 million, up from USD 450 million in 2005. (Note: The UN International Fund for Agricultural Development estimates remittances to total USD 642 million, or 6.9 percent of Uganda's GDP. End note.) Remittances are used primarily for consumption purchases, such as consumer goods, school fees, and rent. There was little reinvestment in businesses on behalf of Ugandans living overseas, although some do purchase homes and real estate in Uganda. ¶9. (U) Some establishments in Uganda accept U.S. dollars for cash transactions. In general, the extensive use of cash -- U.S. dollars and Ugandan shillings -- instead of other financial instruments, even for purchases such as real estate, further hinders the monitoring of financial transactions. Under legislation passed in 2004, forex bureaus are not authorized to transfer money abroad. The GOU has no effective means to prevent money launderers from using the many charitable organizations that operate in Uganda. The Finance Ministry would like to propose legislation that would closely monitor the financial transactions of non-governmental organizations (NGOs) and faith-based organizations, but can not do so until Parliament approves the pending AML bill. In the meantime, the GOU conducts a review of individuals seeking to establish NGOs in Uganda. This includes asking for a criminal background check from the individual's country of nationality. - - - - - - - - - - - - - - - - - No Offshore Banking, EPZs, or FTAs - - - - - - - - - - - - - - - - - ¶10. (U) Uganda does not have an offshore banking sector. TheQ Special Economic Zones Bill of 2002 authorized the creation of export processing zones (EPZ) and free trade areas (FTA) within Uganda. However, the GOU has not created any EPZs or FTAs despite the USD 24 million credit from the World Bank to do so. The Uganda Investment Authority (UIA) would like to establish an industrial business park at Namanve, east of Kampala, and hopes to use the World Bank funds to create EPZs and FTAs within this area. However, the UIA would need a legal framework to do so. The law reform commission is working on amending the existing framework, but no date has been set for submission to Parliament. - - - - - - - - - - - - - - - - - - - - Counterfeit Currency a Growing Problem - - - - - - - - - - - - - - - - - - - - ¶11. (U) In September 2006, Ugandan police arrested two men from Cameroon suspected of counterfeiting Ugandan shillings. The men were found in possession of various chemicals used in counterfeiting along with counterfeit Ugandan notes. Counterfeit U.S. currency is also a growing problem in Uganda. According to the GOU and several currency exchanges, some of the counterfeit U.S. currency arrives from Dubai, which is a key trading hub for Uganda. Also, Post has information about two different counterfeit schemes in which fake U.S. currency is presented to the buyer as "masked" by either black ink or a special stamp. In response, the U.S. Mission in Kampala, in partnership with the U.S. Secret Service, conducted two days of training for commercial banks, BOU employees, police, and immigration officers at the Entebbe airport on how to detect counterfeit U.S. currency. The training included immigration officials because some visitors to Uganda were purchasing their tourist visas at the airport with counterfeit currency. After the training, Mission personnel started tracking counterfeit U.S. currency that is intercepted at commercial banks. The counterfeit notes are passed on to the U.S. Secret Service office in Pretoria. Fraudulent wire transfer letters are another vehicle for financial crime, but U.S. banks usually catch the fraud. ¶12. (U) The Anti-Terrorism Act (ATA),which entered into effect in June 2002, criminalized contributing, soliciting, controlling or managing funds used to support terrorism or terrorist organizations. Thus, the BOU has the power to freeze the assets of any entity designated as a terrorist organization, and also may require a commercial bank to freeze its customer's assets in response to an outside request with a legally binding international convention that Uganda has signed. To date, the BOU has not taken such action. Despite provisions accorded under the ATA, GOU authorities have not prosecuted any cases of money laundering or terrorist financing and claim that they have little power to trace, freeze, or seize terrorist finance-related assets. The Solicitor General explained that the AML bill would allow the GOU to seize all proceeds of crime, as it outlines procedures for freezing, seizing, and forfeiting of assets used for money laundering. ¶13. (U) The Criminal Investigations Department (CID) of the Ugandan Police Force is responsible for investigating financial crimes. In 2001, the GOU criminalized narcotics-related money laundering, but until Parliament approves the AML legislation, the CID maintains only limited authority to investigate and prosecute money laundering violations. The CID is understaffed and lacks adequate training in financial investigation techniques related to AML and terrorist financing. According to GOU officials, criminals have access to technology that is more sophisticated than that which is available to police investigators. The Inspectorate of Government (IG) has the power to investigate cases brought to it by the public, but any AML or terrorist financing cases would most likely be investigated by the CID. - - - - - - - - - - - - - International Cooperation - - - - - - - - - - - - - ¶14. (U) Uganda is a member of the East and Southern African Anti-Money Laundering Group (ESAAMLG) and is party to the 1988 UN Drug Convention. It has signed, and ratified, the United Nations Convention against Transnational Organized Crime. The country has signed but not ratified the UN International Convention for the Suppression of the Financing of Terrorism, the International Convention for the Suppression of Terrorist Bombings, and the Organization of African Unity's Convention on the Prevention and Combating of Terrorism. According to the BOU, Uganda is an active member of the International Criminal Police Organization (INTERPOL) and hosts the headquarters of the United National African Institute for the Prevention of Crime and Treatment of Offenders (UNAFRI). In 2004, the BOU circulated to financial institutions the list of individuals and entities included on the UNSCR 1267 Sanctions Committee's consolidated list. However, it appears that the lists may not have reached all the players in the financial sector, according to Mulindwa. The BOU would like to propose legislation to enforce relevant provisions of the UN Security Council Resolutions 1269, 1368, and 1373 concerning terrorism. ¶15. (U) At this time, Uganda and the United States do not have formal agreements to facilitate the exchange of records in connection with narcotics and money laundering crimes. Nevertheless, Ugandan authorities have cooperated with U.S. law enforcement efforts in the past. In May 2004, at the request of the United States, the GOU detained and deported two U.S. citizens to face money laundering and wire fraud charges in the U.S. - - - - - - - - - - - - - - - - Challenges and Recommendations - - - - - - - - - - - - - - - - ¶16. (U) BOU and Finance Ministry officials agreed that the first step for the GOU is to present the pending AML legislation to Parliament in order to provide the country with comprehensive anti-money laundering legislation that meets international standards. Following passage of the bill, the GOU should establish a viable Financial Intelligence Unit capable of preventing money laundering and terrorist financing. Other challenges include informing the public at large about money laundering, creating infrastructure to implement anti-money laundering guidelines, and seeking the cooperation of financial institutions and all stakeholders. The GOU should also continue to seek out training opportunities for its bankers, police investigators, and prosecutors to improve awareness of money laundering schemes. ¶17. (U) Post's POC for money laundering and other financial crimes is Economic/Commercial Officer Sarah Debbink (debbinksj@state.gov). CHRITTON