Critical Analysis of the Impact of the Anti Money Laundering Act on Commercial Banks in Uganda

ABSTRACT 

The anti-money laundering law is recognized internationally as an important law in combating money laundering especially in banks. To detect money laundering in Uganda, the Anti-Money Laundering Act was enacted in 2013 to guide banks on what measures to implement. However, the AMLA counter measures have put a significant regulatory and compliance burden on the financial institutions and banks. These measures have not only increased the costs, risks, dilemmas incurred by the banks but have also affected the banks relationship with customers. The main objective of this study was therefore to examine the impact of the Anti-Money Laundering Act on commercial banks in Uganda. To achieve this, the study used both doctrinal and empirical methods. The study found that the AMLA had both positive and negative impact on the commercial banks. The major positive impacts were that it increased the standard of identifying customers and enhanced the screening of transactions. The negative impacts were it increased the costs incurred by the bank and broadened the regulatory frame work for banks. This study recommended that even though banks are obliged to fight against money laundering, the various risks and dilemmas experienced by banks showed that there was a regulatory gap in the AMLA that needed to be filled. In the case of the overall increment in the costs incurred by the bank, this study recommended banks to use advanced technology, software and modern management technologies

TABLE OF CONTENTS

DECLARATION ........................................................................................................................ i

APPROVAL BY SUPERVISOR.................................................................................................ii

ACKNOWLEDGEMENT...........................................................................................................iii

LIST OF STATUTES...............................................................................................................iv

LIST OF CASES ......................................................................................................................vi

ABBREVIATIONS AND ACRONYMS...................................................................................viii

TABLE OF CONTENTS...........................................................................................................ix

LIST OF TABLES ..................................................................................................................xiv

ABSTRACT .............................................................................................................................xv

CHAPTER ONE............................................................................................................ 1

GENERAL INTRODUCTION...................................................................................... 1

1.1 Background to the study ........................................................................................... 1

1.2 Statement of the problem ......................................................................................... 3

1.3 Research questions..................................................................................................... 4

1.4 Objectives .................................................................................................................... 4

1.5 Scope of the study...................................................................................................... 4

1.6 Significance of the study ........................................................................................... 5

1.7 Methodology ................................................................................................................ 6

1.8 Literature review ........................................................................................................ 7

1.9 Organizational lay out.............................................................................................. 13

CHAPTER TWO......................................................................................................... 15

ANALYSIS OF INTERNATIONAL, REGIONAL AND NATIONAL AML LAWS . 15

2.1 Introduction............................................................................................................... 15

2.2 What is money laundering? .................................................................................... 15

2.3 Stages and Methods of Money Laundering. ......................................................... 16

2.3.1 Placement Stage ...................................................................................................... 16

2.3.2 Layering Stage ........................................................................................................ 17

2.3.3 Integration Stage.................................................................................................... 18

2.4 Effects of Money Laundering................................................................................ 19

2.5 International instruments related to the AML Law ........................................... 21

2.5.1 The United Nations Conventions and Resolutions............................................. 21

2.5.2 Financial Action Task Force................................................................................... 23

2.5.3 The FATF Forty Recommendations...................................................................... 23

2.5.4 Summary of the FATF Principles for Money laundering prevention. .............. 25

2.5.5 Uganda’s level of compliance with the FATF Recommendations.................... 27

2.5.6 The Wolfs berg Group............................................................................................ 31

2.5.7 Basel Committee on Banking Supervision. ......................................................... 33

2.5.8 The Egmont Group of Financial Intelligence Unit.............................................. 36

2.6 Eastern and Southern Africa Anti Money Laundering Group........................... 37

2.7 The East African Community Actions on Anti Money Laundering................... 38

2.7.1 The Directive of the EAC on AML in the Securities Market.............................. 39

2.8 The Pre-Anti Money Laundering Regulatory Regime of Uganda .................... 41

2.9 The Anti Money Laundering Act of Uganda, 2013 ............................................ 43

2.9.1 The Financial Intelligence Authority of Uganda................................................ 45

2.10 Money laundering offences and Penalties in the AMLA................................... 47

2.11 Freezing, seizure and Forfeiture of property .................................................... 49

2.12 Anti Money Laundering measures adopted by commercial banks in Uganda ............................................................................... 52

2.12.1 Obligation to identify clients, customers and other persons......................... 52

2.12.2 Obligation to Maintain Records .......................................................................... 53

2.12.3 Obligation to Monitor and report suspicious transactions.............................. 54

2.12.4 Obligation to refrain from doing business with money launderers............... 54

2.13 Critical Analysis of the Anti-Money Laundering Act 2013 .............................. 54

2.14 Anti Money Laundering Regulations 2015........................................................ 59

2.15 Conclusion............................................................................................................. 59

CHAPTER THREE...................................................................................................... 61

RISKS AND DILEMMAS OF BANK COMPALIANCE WITH THE AMLA............ 61

3.1 Introduction.............................................................................................................. 61

3.2 The Relationship between bank and customer................................................... 61

3.2.1 Duties of a bank to its customers........................................................................ 62

3.3 The risks experienced by banks when implementing the AMLA................... 63

3.4 Civil Liability Verses Criminal Liability................................................................... 64

3.4.1 Constructive trustee ................................................................................................ 65

3.5 Constructive trustsand duty to report suspicious transactions verses tipping off. ........................................................................ 68

3.6 Breach of Contractual duties verse Criminal liability in money Laundering. .. 71

3.6.1 Other Jurisprudence on Anti Money Laundering................................................. 73

3.7 Duty of Confidentiality verses duty to monitor and report the suspicious transactions........................................................... 75

3.8 Anti-Money Laundering Verses De Risking.......................................................... 78

3.9 Conclusion ................................................................................................................ 80

CHAPTER FOUR ....................................................................................................... 81

A SURVEY ON THE IMPACT OF THE ANTI MONEY LAUNDERING ACT ON COMMERCIAL BANKS IN UGANDA...................................................................... 81

4.1 Introduction.............................................................................................................. 81

4.2 Population................................................................................................................. 81

4.2.1 Sampling technique ................................................................................................. 81

4.2.2 Sampling size............................................................................................................ 82

4.3 Results and Findings ............................................................................................... 82

4.4 Back ground information........................................................................................ 83

4.4.1 Gender....................................................................................................................... 83

4.5 Impact of the Anti Money Laundering Act on banks ......................................... 83

4.5.1 Increase in the staff costs..................................................................................... 83

4.5.2 Broad Regulatory Frame work.............................................................................. 84

4.5.3 Frequent false reporting........................................................................................ 85

4.5.4 Enhanced Screening of Transactions................................................................... 85

4.5.5 Limited Business with customers ......................................................................... 86

4.5.6 De Banking and De Risking................................................................................... 86

4.5.7 Increased standard of customer identification .................................................. 87

4.5.8 Banks are more prone to the tipping off offence .............................................. 87

4.5.9 Bank secrecy overridden ....................................................................................... 88

4.5.10 Increased Bank Dilemmas.................................................................................... 88

4.6 Awareness of the AMLA in the banks.................................................................. 89

4.7 Costs of implementing the AMLA measures........................................................ 90

4.7.1 Economic Costs ....................................................................................................... 90

4.7.2 Operational costs .................................................................................................... 91

4.7.3 Implementation of the AMLA measures is expensive ....................................... 91

4.7.4 Cost of monitoring transactions ........................................................................... 91

4.7.5 System Costs........................................................................................................... 92

4.7.6 Increased Expenses in verifying the identity of customers.............................. 92

4.8 Benefits of compliance with the Anti Money Laundering Act.......................... 94

4.8.1 Preventing of potential fraud................................................................................ 94

4.8.2 Increase in customer confidence ......................................................................... 94

4.8.3 Internal fraud reduction ........................................................................................ 95

4.8.4 Increment of Confidence level by correspondence banks with the bank ...... 95

4.8.5 Increased international market access................................................................ 96

4.8.6 Increase in training of staff................................................................................... 96

4.8.7 Reduction of fines and penalties for non compliance ....................................... 97

4.9 Conclusions ............................................................................................................. 97

CHAPTER FIVE ......................................................................................................... 99

CONCLUSIONS........................................................................................................ 99

5.1 Summary....................................................................... 

5.2 Findings..................................................................................................................... 99

5.2.1 Impact of the Anti Money Laundering Act on commercial banks..................... 99

5.2.2 Costs of implementing the Anti Money Laundering Act................................... 101

5.2.3 Benefits of compliance with the Anti Money Laundering Act.......................... 102

5.3 The risks and dilemmas experienced by compliance of banks to the AMLA .................................................................................. 102

5.4 Recommendations .................................................................................................. 104

5.4.1 Review of the Anti Money Laundering Act 2013............................................... 104

5.4.2 Implementation of a well balanced AML legal regime ..................................... 105

5.4.3 Reduction in the costs of implementing the AML law measures.................... 106

5.4.4 Compliance with of the AMLA on banks............................................................. 106

5.5 Conclusions.............................................................................................................. 107

Bibliography........................................................................................................................ 109

APPENDIX 1........................................................................................................................ 114

QUESTIONNAIRE............................................................................................................... 114