Cablegate: Uganda: 2007-2008 International Narcotics Control Strategy

Published: Fri 16 Nov 2007 09:32 AM
DE RUEHKM #1774/01 3200932
R 160932Z NOV 07
E.O. 12958: N/A
REF: STATE 138226
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.
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Anti-Money Laundering Legislation Stalled
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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
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.
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Whistleblowers Need More Protection
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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.
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An Informal Economy Facilitates Money laundering
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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.
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No Offshore Banking, EPZs, or FTAs
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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.
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Counterfeit Currency a Growing Problem
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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.
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International Cooperation
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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.
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Challenges and Recommendations
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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 (
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