Fraud & Anti Money Laundering

What is money laundering?
Money laundering is a process of conversion of the proceeds of criminal activity into apparently clean funds usually financial services.

When one obtains money from criminal activities like drug trafficking or corruption, they have to ‘clean’ the money to appear as if it was obtained through legitimate means. The process of doing this clean-up is called money laundering.

All these transactions are criminal and are liable for prosecution. The lists given below are not exhaustive; it is to show examples. The Police and the prosecutors can find all the criminal activities and take action accordingly.

What is anti-money laundering?
Anti-money laundering refers to a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions.

How is money laundering done?
It is done by disguising the source of money, changing its form or moving the funds to a place where they are likely to attract attention.

What are the examples of money laundering?
The example includes; fraud which is an act of deception intended for personal gain or to cause a loss to another party. Corruption which can be defined as paying bribe for the benefit of a contract or any you wish for yourself, among others

What is the legal framework of anti money laundering law and to whom does it apply?
The directive applies to banks and the whole of financial sectors as well as to lawyers, notaries, accountants, real estate agents, casinos and company service providers. These subject to the above need to;

  • Identify and verify the identity of their customers and of the beneficial owners of their customers’ e.g. by ascertaining the identity of the natural person who ultimately owns or controls a company.
  • Monitor the transactions of and the business relations with the customers.
  • Report suspicions of money laundering to the public authorities usually the financial intelligence unit.
  • Taking supporting measures, such as ensuring the proper training of personnel and the establishment of appropriate internal preventive policies and procedures.

What is fraud?
Fraud is an act of deception intended for personal gain or to cause loss to another party.
The general criminal offences of fraud include:

  • Deception whereby someone knowingly makes a false representation of material fact
  • For example by failing to disclose complete information
  • It involves abuse of their position of trust
  • The act causes a loss to one party and a gain to the other

What are the types of fraud and money laundering?
1.Types of fraud

  • A cheque stolen and signed by un authorized persons
  • Fraudulent loans
  • Fraudulent ATM transactions
  • Wire Transfer Fraud
  • Accounting Fraud
  • Illegal printing of cash, local or foreign
  • etc

2. Types of money laundering;

  • Bank capture
  • Casinos
  • Real Estate
  • Bulk cash smuggling
  • Drug Trafficking
  • Etc

What should be done to prevent fraud?

  • To prevent fraud, you need to understand why people commit fraud or corrupt acts, in the first place. According to studies, fraud is committed whenever there is motive (need to live lavish lifestyle without enough income to sustain it), opportunity (lack of internal controls at the work place or in your business) and rationalization (justification for committing fraud).
  • One of the most effective ways a company can do to minimize this risk is by continuously reviewing and testing internal controls that is to say the material discrepancies between the management thinks is on place versus what employees are actually doing can be significant. This explains why constantly reviewing internal controls is a major deterrent to fraud.

Organization should also educate their employees and vendors about what is expected of them regarding fraud and implement a fraud hotline outside the company like the on-line based whistle blowing line at https://www.ethicsline.org

  • Another step is to implement and enforce fraud management policies and procedures not just having policies in place, but ensuring that they are implemented. It is surprising that a number of organizations have such policies in place but they don’t enforce them.
  • Institutions should put policies in place to “educate staff about how to live within their means and promote ethics and integrity as critical elements at work places. Anti-fraud awareness and ethics training must be on-going to all staff on regular basis ”
  • Staff Training on use of Computer should be intensified.
  • Staff should be screened thoroughly at recruitment level. Know your staff more closely.
  • Customers should be encouraged to study statements for their accounts and provide feedback

What programs shall be developed against money laundering in Uganda?
The following programs should be developed against ML;

  • Internal controls policies and procedures including designation of compliance officers at managerial level
  • Know your customer rules and regulations
  • Proper record keeping and filing
  • Recognition and reporting of suspicious transactions
  • Educating and training of relevant employees about their responsibilities in prevention of money laundering activities

What are regulations for Anti money laundering especially to financial institutions?

  • Financial institutions shall not keep fictitious or anonymous accounts that they cannot identify the true owner.
  • Clear customer acceptance policies and procedures, which describe the type of customers, that is likely to pose higher than average risk to financial institution.
  • Financial institutions should not open up an account for a customer where problems of verification and identity arise.
  • Financial institutions shall keep records on every customer, Identification including copies or records on official, identification documents like passport, identity cards among others.
  • Financial institutions shall maintain a minimum of ten years all necessary records to enable to comply with any information request.
  • As a customer of a financial institution, you have the responsibility to provide all the requested information to ensure compliance with the anti-money laundering regulations