Follow the Money: Uganda Money Laundering and EU Double Standards
June 30, 2020
June 30, 2020
Money laundering remains a significant stimulus for both organised crime syndicates, and even terror groups. Uganda’s mainly cash-based economy creates ideal conditions for money laundering in a region rife with instability, organised crime, and terrorism:
This Grey Dynamics African intelligence article analyses the Ugandan money laundering reality first, but secondly highlights the hypocrisy of the EU approach to money laundering.
There are multiple factors which facilitate ideal money laundering conditions in Uganda. The Ugandan economy is mainly cash-based, with only 20% of Ugandans depositing money in the formal bank sector. The financial/banking sector is growing, with 25 commercial banks, 84% foreign-owned, and more than 300 non-bank financial institutions, which are looser in anti-money laundering regulations and compliance. The lack of intellectual property rights legislation in Uganda also contributes to the booming black market for fake and smuggled goods, creating a further influx in cash flow.
The real estate and casino industry are ideal sectors that can be targeted for money laundering, which is rampant in the Uganda case. Mobile banking is also on the rise, and while mobile banking reduces some risk, it is still possible to launder through these forms of transactions. NGO start-ups are a key contributor to the facilitation in place, in Uganda, there are over 13,000 registered while only 3,000 are formally operating. These factors mentioned, combined with loosely regulated borders, all provide ideal conditions for money laundering and possible terror group financing which is prevalent in the region in the form of Al-Shabaab, ADF and ISCAP/ISIS.
The flow of illicit funds in the Ugandan economic, as well as the political system, has raised concerns, and since 2016, the US Department of State International Narcotics Control Strategy Report has categorised Uganda as a ‘monitored’ jurisdiction. As mentioned before, Uganda is on the FATF list, which places 40 recommendations to follow. Uganda has been found largely compliant in only 12 of these, and highly/substantially effective for 0 of the Effectiveness and Technical Compliance ratings in a Mutual Evaluation Report (MER) in 2018. Uganda has however taken legislative steps to increase anti-money laundering (AML) capabilities, which have prompted the FATF to remove Uganda from the list of shame in 2017.
The Anti-Money Laundering Amendment Bill 2018 gave Uganda access to the Egmont Group – consisting of 159 Financial Intelligence Units to support AML and counter-terror financing (CTF). In February 2020, a high-level cabinet commitment was established to increase cooperation with the FATF and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). It is of course too early to predict how effective these measures will be, but if adopted and implemented, will this remove Uganda from the EU’s list? The answer is complicated and would seem to depend on political narratives.
On May 7th 2020, the EU named and shamed 20 states, guilty of posing a potential high-risk for criminal and terrorist funds into the EU financial system: Panama, Afghanistan, Bahamas, Barbados, Botswana, Cambodia, Ghana, Iraq, Jamaica, Mauritius, Mongolia, Myanmar/Burma, Nicaragua, Pakistan, Syria, Trinidad and Tobago, Vanuatu, Yemen, Zimbabwe, and of course Uganda. All 27 EU member-states were of course not included as they are within the system. It is important to note that Cyprus had a $1.3 billion case for money laundering in 2019, around the same amount Uganda loses to money laundering annually.
For example, Société Générale in France had a $13 billion case, with another $10 billion case in Germany, and a huge $230 billion case in Denmark reiterates the point that money laundering is rampant in EU countries. The city of London in the UK is a well-known final destination for laundered money. Now, of course, it is a responsible approach to protect the financial institutions from further damage, but the missing names warrant closer analysis.
The EU commission in 2018 noted that 54 countries merited risk assessments. Saudi Arabia had met the criteria required to be a part of the list, but inclusion was vetoed, to maintain the economic and political relationship with Riyad. The US was also excluded, along with American Samoa, Puerto Rico, Guam, and the US Virgin Islands. While the US and UK have deep-rooted money laundering issues, in 2019 they led the way in AML fines. This, along with countermeasures, reduces some flow of dirty money but does not solve the issue.
China and Russia were also absent from the list, along with EU oil supplier Azerbaijan, as well as Singapore. Many of the high-profile cases of money laundering in the EU originate from Russian money laundering, including a $200 billion Danske Bank Affair case in 2018. It is almost certain that Russian money laundering is linked to organised crime, increasing the possibility of terror financing through for example the Afghan heroin trade. Offshore banking establishments are created by states, not criminal organisations, to flow laundered money back into normal economies.
If the EU wishes to clean up financial institutions, stemming the flow of smaller economies such as Uganda is not a sufficient approach. In light of this, it would seem that establishments simply require stringent regulations to ‘control’ part of the money laundering, not eradicate it. Money laundering is a highly stimulating and interchangeable part of EU economies, which is willing to lose Ugandan dirty money, but not the laundered billions of Russia, China, Saudi Arabia and other strategic partners.
Eren Ersozoglu is an analyst / contributor intern at Grey Dynamics. A former history graduate from Coventry University with a focus on links between terrorism and organised crime studying an MA in intelligence and security studies at Brunel University.