By MARTIN LUTHER OKETCH
The huge amounts of money handled by private forex bureaus could be a threat to the country and the region if foreign exchange rules are disregarded, the Bank of Uganda has warned.
In a meeting held in Kampala by forex bureaus and money remittance operators on April 30, the executive director of bank supervision at the Bank of Uganda, Justine Bagyenda, raised the alarm on possible money laundering and financial terrorism.
She said the laid-down guidelines should be adhered to as the country awaits the enactment of the Anti Money Laundering Law.
A survey by the EastAfrican reveals that many operators are not complying with Know Your Customer requirements and procedures drafted by the central bank.
These procedures were issued to all forex bureaus and money remitters in August 2003 to assist in combating the vice in Uganda’s financial sector.
Said Ms Bagyenda: “For instance, some of you are not undertaking due diligence to ensure that customer identification details for large transactions are provided.”
She added: “We have noted that 90 per cent of the operators do not capture the sources of and the purposes of foreign exchange.
“This is very dangerous as it is a possible avenue for money laundering. You should comply with the law on declaring sources and purposes of foreign exchange, and the ‘know your customer’ measures that are crucial to turn down illegally-acquired funds and prevent possible financing terrorism.”
Foreign exchange regulations require dealers to report to the Bank of Uganda the details of any individual selling amounts in excess of $5,000.
Privately run foreign currency exchange bureaus and money remittance outlets handled 30 percent of the net foreign exchange transactions in Uganda in 2008, but the regulators are concerned by increased laxity.
The Bank of Uganda says the forex bureau and money remittance sector has remained largely buoyant, with a total of 122 forex bureaus and 75 money remittance outlets.
But a few were not following operational procedures regarding identification of clients, leaving the country open to money laundering.
Ms Bagyenda said an increase was reported in the inflows and outflows of licensed money remittances in the country that stood at the equivalent of $226.01 million in inflows and $104.20 million in outflows, at the close of December 2008.
This was a tremendous improvement compared with $99.44 million and $40.59 million recorded inflows and outflows during 2007.
Statistics from the bank show that total purchases in the forex bureaus market increased from $1.2 billion at the end of December 2007 to $1.5 billion at the end of December 2008, while total sales increased from $1.3 billion to $1.6 billion over the same period.
It is due to this performance that the Bank of Uganda continues to recognise the crucial role played by forex bureaus and money remitters as partners in deepening the financial sector and fostering macroeconomic stability and growth in the country, Ms Bagyenda said.
She added that increased risk aversion by investors and the effects of the global recession were presenting significant macroeconomic challenges to Uganda’s financial system.
If the global recession is prolonged, Uganda could face reduced export earnings, a decline in foreign direct investments and reduced remittances, which would significantly reduce the banking system liquidity and exert pressure on exchange rates and debt service capacity.
Uganda’s forex bureaus and money remitters operate under the Foreign Exchange Act of 2004 and the Foreign Exchange Remitters Act 2006.
The two Acts provide for exchange of foreign currencies in Uganda and making of international payments and transfer of foreign exchange; and for other related and incidental matters.
Ms Bagyenda promised more rigorous inspections to ensure compliance with laws through off-site and on-site surveillance of forex bureaus and money remittance sector.
In a related development, the bank’s assistant director of non-bank financial institutions, Benedict Ssekabira, said Uganda and Kenya had started harmonising the supervision of forex bureaus.
Two Bank of Uganda officials were to be in Kenya from May 4-8 for an insight into on-site and cash audit operations, he said.
Likewise, CBK officials have been in Uganda for lessons on risk-based supervision of commercial banks and financial institutions. The visits were arranged by a committee of the East African Monetary Community, which is handling the East African Monetary Union.
The East Community Monetary Committee Affairs — under the umbrella of the five governors of central banks of Tanzania, Kenya, Uganda, Rwanda and Burundi — is trying to beat the 2012 target of fast-tracking the East African Monetary Union.
Source: The East African
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