VZCZCXYZ0000
RR RUEHWEB

DE RUEHKM #1774/01 3200932
ZNR UUUUU ZZH
R 160932Z NOV 07
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 9638
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC

UNCLAS KAMPALA 001774 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT FOR INL, S/CT, AND EEB 
JUSTICE FOR AFMLS, OIA, and OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER SNAR ASEC UG
SUBJECT: UGANDA: 2007-2008 INTERNATIONAL NARCOTICS CONTROL STRATEGY 
REPORT, PART II 
 
REF: STATE 138226 
KAMPALA 1690 
KAMPALA 1302 
 
¶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 
offences. 
 
¶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 (debbinksj@state.gov). 
CHRITTON