Uganda is estimated to be losing Shs 2 trillion annually to illicit financial flows (IFFs) and the situation could get worse with the commencement of commercial oil production, a study has revealed.
The study by the civil society coalition on oil and gas revealed that in a period spanning 2006 to 2015, the country lost in excess of $7 billion in trade mis-invoicing alone.
IFFs, according to Global Financial Integrity – a Washington-based organization, refer to movement of money and value from one country to another that is illegitimately earned, transferred and or utilized.
Titled Illicit financial flows risk factor in Uganda’s oil and gas sector, the study was the central theme of discussion at a roundtable hosted by Advocates Coalition for Development and Environment (ACODE), which was held February 24 in Kampala.
Dan Ngabirano, a lawyer and one of the authors of the study, categorized the potential sources of illicit financial flows in Uganda into commercial drivers; which account for 65 per cent, corruption at five per cent and crime at 30 per cent.
According to Ngabirano, factors like base erosion and profit shifting, unequal production sharing agreements and double taxation agreement treaties were the main commercial drivers of illicit financial flows. Uganda has taken several measures to safeguard its oil revenues in the recent years in order to make sure that it is properly managed. However, risk factors to IFFs remain a threat, according to the study.
“Major international oil companies currently involved in Uganda’s oil sector are registered in tax havens, and some have concealed ownership structures which pose a high illicit financial flows risk,” the report notes.
It adds: “Production sharing agreement gives international oil companies undue advantage over the state to the extent that they contain stabilization clauses aimed at restricting the state’s capacity to task the companies.”
Furthermore, the study reveals that although Uganda currently has comprehensive transfer pricing rules aimed at reducing incidences of tax avoidance, there is too much secrecy and information unavailability.
Government has, however, intensified measures to try and curb the risks associated with IFFs in Uganda even if the report states that corruption and lack of capacity still hold these efforts back. Micheal Olupot Tukei, the deputy executive director, Financial Intelligence Authority (FIA), says the authority is actively trying to combat IFFs through coordinated effort involving partnerships with neighboring countries.
“Within the existing framework, FIA undertakes its role in the fight against illicit financial flows through interventions that involve basically cross-border cooperation. We are a member of the East and Southern African Money Laundering Group and the Egmont Group of Financial Intelligence Units that has 166 members and widens our scope of partnerships,” Tukei said .
A lot more effort has also been put on ensuring that there is internal cooperation among local government agencies so that there is a coordinated effort to fight IFFs with MOUs now signed with the Uganda Revenue Authority and the Inspectorate of Government, among other organs, to help in information exchange, according to Tukei.
Emphasis on training of staff will also elevate their capacity and equip them with adequate skills to deal with IFFs, although the mantle, according to Tukei, is on financial regulators heightening the level of transparency in the banking sector.