Cablegate: Uganda: 2009 International Narcotics Control Strategy

VZCZCXYZ0004
RR RUEHWEB

DE RUEHKM #1379/01 3411807
ZNR UUUUU ZZH
R 071807Z DEC 09
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 2003
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC

UNCLAS KAMPALA 001379

DEPARTMENT FOR INL, SCT, AND EEB
JUSTICE FOR AFMLS, OIA, AND OPDAT
TREASURY FOR FINCEN

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: KCRM EFIN KTFN SNAR PTER ASEC UG
SUBJECT: UGANDA: 2009 INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT, PART II

REF: A) STATE 114960, B) KAMPALA 1293, C) 08 KAMPALA 1601

1. Summary: Uganda is not a major hub for narcotics trafficking and
terrorism financing, but it is a growing site for money laundering.
Ugandan efforts to combat money laundering are hampered by the
continued absence of comprehensive anti-money laundering
legislation, severe resource constraints, and internal government
corruption. Counterfeit U.S. currency is a recurring problem.
While Uganda has no formal cooperative agreements with the U.S. in
regard to narcotics or money laundering crimes, Ugandan authorities
continue to cooperate with U.S. law enforcement. Uganda's inability
to monitor formal and informal financial transactions, particularly
along porous borders with Sudan, Kenya, Tanzania, and the Democratic
Republic of Congo, render Uganda vulnerable to more advanced money
laundering activities and potential terrorist financing. End
Summary.

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Anti-Money Laundering Legislation Stalled
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2. Uganda's Financial Action Task Force (FATF), comprised of
multiple Ugandan government ministries and chaired by the Bank of
Uganda (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 Cabinet approved the bill in January 2005. In
2009, the bill was finally submitted to Parliament. Citing
"procedural concerns", the Finance Ministry drafted several
amendments to the bill in consultation with other ministries and the
BOU. Some attribute the delay in passing the AML to corrupt
government officials currently exploiting loopholes the AML is
designed to close.

3. Without AML laws, Uganda cannot create an operational Financial
Intelligence Unit (FIU) or pursue other anti-money laundering
measures. The draft AML bill provides for the creation of an FIU
under the Minister of Finance. The legislation would also create 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 offenses.

4. From 2002 to 2004, the BOU issued guidelines to financial
institutions, foreign exchange (forex) bureaus, and local insurance
companies stipulating 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. Section 126 of the
Financial Institutions Act (FIA) requires financial institutions to
follow BOU orders and guidelines, and the BOU conducts regular site
inspections at financial institutions. This oversight has resulted
in increased financial institution compliance and cooperation with
BOU. For example, in November 2009, reports surfaced that Centenary
Bank froze a number of accounts pending a further investigation with
BOU into the source of the funds.

5. Barclays Bank and Stanbic Bank have implemented 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 BOU attempts to monitor cross-border
financial transactions in conjunction with custom officials at some
border posts, but is limited by severe resource constraints.

6. The government has implemented few controls for non-banking
financial institutions and intermediaries. The Capital Markets
Authority 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 under Ugandan law. Other entities such as casinos,
real estate agents, vehicle importers, and precious metal dealers
are neither self-regulated nor supervised. For purposes of
compliance with the anti-money laundering requirements, section
seven of the AML bill proposes that the FIU supervise these
currently unregulated/self-regulated entities.

7. Nearly 130 forex bureaus operate in Uganda. The BOU closed four
forex bureaus in 2008. One forex bureau was closed due to lack of
capitalization. The three others were closed for not meeting BOU
performance and adequate capital requirements. No forex bureaus
were closed in 2009.

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Whistleblowers Need More Protection

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8. Whistleblowers who report suspicious money transfers have some
protection under the law. The AML bill, if and when passed, will
provide additional whistleblower protections. A Whistleblowers and
Witness Protection Bill sponsored by the Ministry of Ethics and
Integrity is under review in Parliament. This bill will provide
broader protections for individuals who report incidents of
corruption to authorities.

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Informal Economy Facilitates Money Laundering
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9. Money laundering in Uganda derives from a wide range of
activities, including government corruption, misappropriation of
public funds and foreign assistance, abuse of the public procurement
process, as well as from abuse of religious charities, land
speculation, car theft, arms and natural resource smuggling, and
exchange control violations. Uganda's active informal economy also
provides a fertile environment for money laundering. Uganda's
thriving black market for smuggled and/or counterfeit goods takes
advantage of porous borders and lack of customs and tax collection
enforcement capacity. Many Ugandans working abroad use an informal
cash-based remittance system to send money to their families.
Annual remittances are Uganda's largest single source of foreign
currency and totaled $414 million in 2008/2009, down sharply from
$645 million in 2006/2007 and $546 million in 2007/2008 due to the
global financial crisis. Remittances are used primarily for
consumption purchases, such as consumer goods, school fees, and
rent. There is little reinvestment in businesses on behalf of
Ugandans living overseas, although some do purchase homes and real
estate in Uganda.

10. The extensive use of cash -- U.S. dollars and Ugandan shillings
-- instead of other financial instruments, even for purchases such
as real estate, hinders the monitoring of financial transactions.
The GOU has no effective means to prevent money launderers from
setting up local non-governmental organizations (NGOs) to mask
financial transactions. The Finance Ministry would like to propose
legislation that would closely monitor the financial transactions of
NGOs, but cannot do so until Parliament passes the AML bill. In the
meantime, the GOU requires individuals obtaining work permits with
NGOs to demonstrate they have had no prior criminal convictions,
either by providing a letter from the police or a letter from the
individual's embassy if the individual is a foreign national. Forex
bureaus are not authorized to conduct international money tranfers.
The tranfers of Western Union and other international money transfer
agencies are monitored.

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No Offshore Banking, EPZs, or FTAs
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11. Uganda is not considered an offshore financial center. The
Special Economic Zones Bill of 2002 authorized the creation of
export processing zones (EPZs) and free trade areas (FTAs) within
Uganda. However, Uganda has not created any EPZs or FTAs despite a
$24 million credit from the World Bank to do so. The Uganda
Investment Authority (UIA) is in the process of establishing an
industrial business park at Namanve, east of Kampala, and hopes to
use World Bank funds to create EPZs and FTAs within this area.
However, it lacks a legal framework to manage them. This framework
is articulated in the draft Free Trade Zones Bill currently
undergoing Cabinet review. The UIA will continue to regulate
operators in the zones until a Uganda Free Zones Authority is
established.

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Counterfeit Currency a Growing Problem
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12. Counterfeit U.S. currency is a consistent problem in Uganda.
Counterfeit U.S. currency arrives from, and transits through, Uganda
to the Democratic Republic of Congo, Kenya, and Dubai. In one
common counterfeit scheme, counterfeiters sell fake U.S. currency
marked or "masked" by black ink or a special stamp. The seller
offers this currency at a discount because of the markings, and
claims that the bills can be exchanged or "unmasked" at a U.S.
embassy or bank. Larger schemes involving millions of counterfeit
U.S. dollars also occur. In mid-2008 in eastern Uganda, police
arrested an individual in possession of more than $1 million in
counterfeit U.S. dollars. Highlighting Uganda's unwillingness to
crack down on counterfeiters in cases involving well-connected
individuals, police subsequently released the individual from
custody, and he later disappeared.

13. In 2008, the U.S. Mission and U.S. Secret Service (USSS)
trained commercial banks, BOU employees, police, and immigration
officers at Entebbe International Airport on how to detect
counterfeit U.S. currency. The USSS has offered to conduct
follow-on training in 2010. During the training, Ugandan commercial
banks, the BOU, and Mission personnel agreed that the BOU would
serve as the central depository for counterfeit U.S. dollars seized
in Uganda. This system has allowed Mission personnel to track much
larger amounts of counterfeit U.S. currency intercepted in the
country. The counterfeit notes are passed on to the USSS office in
Pretoria, South Africa, for investigation. Fraudulent wire transfer
letters are another vehicle for financial crime, but U.S. banks
usually catch the fraud. Ugandan authorities have also sought
Embassy assistance in cases involving counterfeit AMEX travelers'
checks, and routinely seek Embassy confirmation that U.S. bank notes
seized during investigations are spurious.

14. The 2002 Anti-Terrorism Act (ATA) criminalizes contributing,
soliciting, controlling, or managing funds used to support terrorism
or terrorist organizations. 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. The BOU has yet to
freeze any assets under the ATA, however. The AML bill would allow
the GOU to seize all proceeds of crime, as it outlines procedures
for freezing, seizing, and forfeiting assets used for money
laundering.

15. 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. Internal corruption within the CID also hampers police
investigative capacity. According to GOU officials, criminals have
access to technology that is more sophisticated than what is
available to police investigators. The Inspectorate General of
Government (IGG) has the power to investigate cases brought to it by
the public, but in practice AML and terrorist financing cases are
investigated by the CID.

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International Cooperation
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16. 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. Uganda 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.
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. The BOU would
like to propose legislation to enforce relevant provisions of the UN
Security Council Resolutions 1269, 1368, and 1373 concerning
terrorism.

17. 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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18. Uganda should pass the anti-money laundering bill now pending
in Parliament to provide Uganda with comprehensive anti-money
laundering legislation that meets international standards and
establish a Financial Intelligence Unit. Uganda should also pass
pending whistleblower legislation. Other challenges include
informing the public about money laundering, creating infrastructure
to implement anti-money laundering guidelines, and seeking the

cooperation of financial institutions and other 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.

19. The U.S. Mission's INCSR point of contact is Economic and
Commercial Officer Donald Cordell (cordelldb@state.gov).

LANIER

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