Financial Crime World

Uganda’s Money Laundering Menace: Trade-Based Money Laundering Techniques on the Rise

Kampala, Uganda - A recent report has highlighted the increasing use of trade-based money laundering (TBML) in Uganda, a sophisticated and hard-to-detect method that deprives the country of much-needed tax income.

What is Trade-Based Money Laundering?

Trade-based money laundering involves giving false information on imports and exports through various means such as:

  • Over/under-billing
  • Multiple billing
  • Over/under shipping
  • Quality misrepresentation

The Financial Action Task Force (FATF) defines TBML as a process of concealing the proceeds of crime and moving value through trade transactions to legitimize their illicit origins.

TBML is often confused with trade-related offenses such as fraud and smuggling, but it is distinct in that it doesn’t involve the movement of goods. Instead, it involves the movement of value facilitated by trade transactions.

The Report’s Findings

The report, published by Advocates Coalition for Development and Environment (ACODE) and Global Financial Integrity (GFI), reveals that TBML has been recognized as one of the three main methods criminal organizations and terrorist financiers use to move money while disguising its origins. The method is based on fraudulent trade transactions and their financing, which is facilitated by:

  • Scale: large volumes of trade transactions
  • Complexity: multiple layers of transactions
  • Speed: rapid movement of value through electronic systems

Digitalization and TBML

The digitalization of global commerce has enabled electronic fraud, including falsification of documents and lower transportation costs for commodities. Additionally, TBML often converges with other types of crime such as:

  • Corruption
  • Illicit trade
  • Drug trafficking
  • Human trafficking
  • Terrorism financing
  • Other illegal activities

Impact on the Economy

TBML deprives the government of much-needed tax income, which limits the amount of money it can spend on service deliveries like security, administration of justice, and social programs. This compels the government to finance its budget through both domestic and foreign borrowing, with Uganda’s debt burden standing at 51.9% of GDP.

Estimated Revenue Loss

The report estimates that trade mis-invoicing (TM), a form of TBML, has resulted in revenue loss of $6.6 billion between 2006 and 2015. Gold and petroleum products are listed as being particularly vulnerable to TBML, with reported production of gold in the country being low and unclear data on the mines from which it is sourced.

Countermeasures

To counter TBML, key institutions such as:

  • Financial Intelligence Authority (FIA)
  • Criminal Investigations Department (CID)
  • Uganda Revenue Authority (URA)

exist. The government has also developed a National Strategy for Combating Money Laundering and the Financing of Terrorism and Proliferation to ensure that Uganda’s AML regime is aligned with international standards.

Legislative Efforts

Parliament has passed key legislation to address existing gaps in the law on beneficial ownership information and to empower the FIA and other supervisory authorities to levy administrative penalties for breach of the provisions of the Act.