Money Laundering is big business. It is said that the laundering of dirty money plays a key role in the large proportion of criminal activity which according to International experts generates around 1,500 billion dollars a year. These activities not only foster continued criminal activity (and terrorism) and threaten the financial system of the world, but on a reduced level, also promote the development of corruption and threaten the very foundations of the rule of law. As a result, there has been increasing pressure on states and governments to develop policies and regulations to combat money laundering. In Uganda, it can be said that the Anti Money Laundering Act 2013 (“the Act”) was as a result of such effort. It became law in November 2013.
Put simply, the Act aims, primarily, at the prohibition and prevention of money laundering through combating money laundering activities. It seeks to do this by imposing certain duties on institutions and other persons who may be used for money laundering purposes. It also offers guidance on how to deal with exposure to potential money laundering activity.
The Act is without a doubt a laudable effort, not least for the fact that something had to be done to atleast show a commitment by the Government in fighting money laundering and also be part of the larger global story. On examination however, the Act seems to me unable to solve the problems that authorities elsewhere have grappled with in the fight against money laundering.
This is mainly because the players in money laundering are far more complicated in their dealings. To introduce bad money in the legal economy, the holders provide it with an appearance of legitimacy. To conclude transactions that infuse clean money and dirty money, the dirty money is subjected to a series of transformations through a dizzying maze of intermediaries with varying degrees of complexity. As it has rightly been said, a cocktail of truth, falsity and evasion is a more powerful instrument of deception than undiluted falsehood and it is very difficult to detect. Moreover, money laundering is a shifting reality that constantly adapts to changing circumstances. As is often the case, the authorities only detect money laundering schemes after they have been used by the criminals. Thus despite its good intentions, I do not see how the Act will surmount this challenge. This is a problem which seems to be bigger than the law itself.
But as with any legislation, the Act is commendable in certain respects. First, the Act makes money laundering a crime, which crime it defines broadly. Money Laundering is defined as “the process of turning illegitimately obtained property into seemingly legitimate property and it includes concealing or disguising the nature, source, location, disposition or movement of the proceeds of the crime and any other activity which constitutes a crime under section 3 of the Act”. The crimes mentioned in Section 3 thereof are wide and include assisting another in the crime, attempt to commit, avoiding the reporting requirements as stipulated by the Act etc. I think is a big leap in combating the crime. Before, it was restricted to only profits generated by drug trade but this definition extends its reach. Now, profits generated from a number of different crimes are targeted too; illegal arms trafficking, terrorism, smuggling, scams, corruption, computer fraud, procurement, fraudulent use of corporate property etc. This broad brush approach will ensure that the net when cast will atleast catch something.
As to geographical reach, the Act extends to crimes committed within the territory of Uganda, on board a vessel that is flying the Ugandan flag or aircraft registered under the laws of Uganda, to crimes committed by a national of Uganda (I would interpose “irrespective of where he is”), a crime committed outside Uganda but with the end objective of committing the crime in Uganda. This rather extensive reach is very useful in addressing the issues created by cross-border crime, particularly, the financing of international terrorism. To take but an example of modern day terrorist financing, terrorist organizations have very stronghold over armed groups across the world whose activities they finance. The weak states are usually the breeding grounds for terrorism; Sudan, Afghanistan, Sierra Leone etc. These groups are financed by terror groups who run both legal and illegal businesses. In her book “Modern Jihad: Tracing the Dollars Behind the terror Networks”, Loretta Napoleaoni mentions that in the 1970’s the IRA acquired a monopoly over transportation in the catholic areas in northern Ireland owning taxi companies and employing people, owned cooperatives, supermarkets and butcher’s shops. In such a situation, the proceeds of any such above crimes would be caught by our Act if they had a connection to Uganda in any way irrespective of the country where they were originated.
To achieve its objectives, the Act places certain obligations on accountable persons. These include financial institutions, casinos, real estate agents, advocates, dealers in precious metals and gems, registrars of companies, registrars of land, Non governmental organisations, all licensing authorities in Uganda, any person who conducts the business accepting deposits, transfer of money, lending etc. This broad group can help to spread the anti money laundering gospel. These accountable persons are supposed to undertake due diligence measures like proper identification of clients, maintain client records for atleast ten years, record and report cash and monetary transactions and report any suspicious transactions to the Financial Intelligence Authority (“the FIA”). It is an offence under the Act for an accountable person to renege on their obligations. Once the FIA receives a report, it shall investigate the transactions and where appropriate undertake certain action including seizure, freezing and forfeiture of assets in relation to money laundering.
But like most preventive legislations, the problems always lie in implementation. The effectiveness of FIA will depend on the availability of resources (skills and monetary) necessary to tackle a problem as complex as money laundering (The FIA has just started operating and the jury is still out). For instance, in other countries, a network of financial intelligence units were put in place to provide a rapid response to criminal money transfers. However, a number of national and global efforts have stagnated primarily because there were insufficient resources to address deficiencies in a number of countries. There were inadequate systems for obtaining information on customer identity, reporting suspicious transactions, and confiscating terrorist assets. Uganda is no different or perhaps worse. If the government can fail to raise money to run its very own organs like the judiciary, it is not farfetched to think that the FIA will suffer the same fate. I am aware that the IMF and World Bank have helped countries to address these problems through an ambitious program of technical assistance. But such acts of generosity always lack sustainability in the long run.
As a Lawyer (well, Iam looking after my own), the Act raises another intriguing problem. As noted earlier, Advocates are also accountable persons. They are obligated to report any suspicious transactions in which they engage. The problem is, as controls have been tightened in the formal financial system, the attorney-client privilege has made lawyers a particularly attractive means for disguising the money trail. After all, isn't this privilege just another form of secrecy, which can cleverly substitute for bank secrecy to improperly cloak transactions and sources of funds? At the same time, isn't the advocate-client privilege an important building block for a fair legal system? I predict a big fight from the legal professionals on the grounds that such requirements breach advocate-client confidentiality and also greatly impact the doctrine of fair hearing and the rule of law.
Lastly, Uganda has a variety of informal funds transfer systems. Informal in the sense that such systems are money transfer services that accept cash in one location and pay a corresponding cash sum to a beneficiary in another location by means of a message or phone call. This mode of money transfer creates no paper trail. Mobile money is the most ubiquitous of this lot. Naturally, they are attractive conduit for channeling terrorist and other illicit funds, since they typically do not leave a paper trail. More importantly, their regulation is lax and this is their comparative advantage. I do not see how they will fit into the stringent disclosure requirements of the Act without the appearance of over-regulation that could drive such operations further underground or even threaten their very existence.
In the end, my concern is that the challenge in the fight against money laundering has been the failure to move from reactive responses to past problems to proactive responses to meet future needs. For history teaches us that criminals are quick to exploit any weakness in legislative and institutional frameworks, both domestic and international. They will take advantage of any loopholes particularly in informal, unregulated and unsupervised sectors. Where there are no loopholes, they will be created. That is the inevitable thing. In my heart of hearts, I hope I am wrong and that the authorities will be able to adapt as quickly. But the truth is that authorities are far more ill-suited to provide timely responses. That is what history has taught us in the past and there is no reason to think that it will be different for Uganda going forward.