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