25 October 2010

http://allafrica.com/stories/201010251641.html

Nairobi — The Anti-Money Laundering Bill 2009 is out and currently before parliament. Passage of the Bill should be treated as urgent and necessary; Uganda badly needs legislation that clearly defines and criminalises money laundering.

Somewhat surprisingly, the Bill has been received with mixed reactions -- some even argue that Uganda's growing economy requires large-scale investment from outside to boost demand and create jobs, and so we should not be too choosy about the sources of that money.

However, large sums of laundered cash can have an adverse impact on inflation as well as the larger economy; worse, money laundering often supports organised crime and terrorism.

Uganda does not need and should not want investment from sources with ties to organised crime and terrorism.

The drafting of the Anti-Money Laundering Bill began in 2004 and Uganda is the last of the East Africa Community states to adopt this legislation.

The Bill is based on the 40 plus eight recommendations of the Financial Action Task Force, an internationally accepted standard for fighting money laundering and combating the financing of terrorism.

Briefly, the Bill identifies responsible persons with a line of sight down the money laundering chain and requires them to vet their customers, monitor transactions and notify authorities of suspicious transactions.

It prescribes stiff penalties and proposes the creation of an independent Financial Intelligence Authority tasked with enforcement, as well as clearly identifying responsible parties and their obligations.

The Bill is well intentioned, but there are still a number of areas where it could be strengthened and improved.

One problem with the Bill is that it allows the Minister of Finance to exempt any entity from complying with its provisions, without condition.

The Bill also does not include the Uganda Revenue Authority among accountable entities. URA has a very good, if not superior, line of sight concerning unusual patterns in imports and cases of dumping.

Other entities such as the Civil Aviation Authority should be considered accountable as well. Launderers will be scrutinised for purchasing a luxury vehicle for $100,000 but not a $5 million aircraft, at least under the current legislation.

Finally, the legislation does not consider cases of short-term asset transfers, which should be registered and monitored on a timely basis to ensure that they are not vehicles for laundering.

The Bill places the same requirements for accountability upon all responsible parties and their obligations are all the same.

Banks, insurance companies, microfinance institutions, collective investment schemes, lawyers, accountants, real estate firms, registrars of land and private individuals who hold money on behalf of others in a safekeeping role are all considered responsible for identifying and reporting suspected launderers to the authorities.

This is contrary to the Task Force recommendations, which place greater responsibility upon financial institutions.

A sliding scale aligned to risk profile, level of involvement in transactions and ability to comply would better reflect the reality of money laundering in Uganda.

Currently, accountable entities like commercial banks already implement Bank of Uganda anti-money laundering guidelines including specific "know your customer" requirements and the reporting of suspicious transactions.

Banks usually have sophisticated information systems allowing them to track individuals and companies with higher risk, such as entities that are internationally blacklisted or politically exposed (with connections to senior politicians).These systems allow banks to track transactions in real time and generate concise, daily reports.

Not all banks observe the same standards or as consistently, but the new standards are even more stringent than the current BoUg guidelines.

Therefore, even the most compliant bank will have to increase its engagement to comply with the new anti-money laundering controls. Compliance is likely to increase the cost of doing business for banks and without tax breaks to offset these additional costs, the burden will be passed to customers.

Other accountable entities face different challenges. Insurers, insurance brokers, investment funds, professional services providers (like lawyers, accountants, real estate firms and agents) and government agencies (UIA, registrars of land, etc) have not always invested significantly in information technology.

Many currently lack the systems and expertise needed to comply with the Bill's requirements. The government should work to offset the burden of compliance by helping these entities build capacity.

Another challenge is that current laws governing the registration of professional services providers are often lax, nonexistent or poorly enforced.

Individuals with insufficient experience, knowledge and/or resources to carry out their duties are considered accountable under the Anti-Money Laundering Bill.

Finally, Uganda still does not have national identity cards and many individuals who lack internationally accepted identity documents could be excluded from financial services, to the detriment of Uganda's economy.

Also, launderers typically engage with multiple institutions to disguise their activities and a current inability to identify companies under common control or ownership -- because of a lack of publicly available information about them -- opens up many opportunities for laundering.

So, the real question for Uganda is whether the country is ready for comprehensive anti-money laundering legislation.

Many Ugandans are aggrieved by corruption and other economic crimes, but they still may not like the thought of keeping such a close eye on customers and telling on them.

The inner conviction to follow the law and ask rigorous questions, recognise unusual patterns and report suspicious activity cannot be assumed, particularly if trust in the authorities generally is lacking.