All Legal Professionals are required by the AMLA and the AML Regulations to fulfill certain obligations. These obligations include: (1) Registration with the FIA (2) Reporting suspicious transactions and certain cash transactions (3) Undertake customer due diligence (CDD) measures (4) Ascertain whether the customer is acting for a Third Party(ies) (5) Record keeping (6) Develop and implement internal control measures, policies and procedures to mitigate ML/TF risks (7) Appoint a Money Laundering Control Officer (8) No Tipping-Off
4.1. Registration with FIA By virtue of regulation 4 of the AML Regulations 2015, you are required to register with the FIA for the purpose of identifying yourself as an entity which is supervised by the FIA. You must also notify the FIA of a change of address of your registered office or principal place of business. a) How to Register The registration process is simple and free of charge. Registration forms are available on the FIA's website; www.fia.go.ug which, you may download, complete and have it delivered to FIA office, on Plot 6 Nakasero Road, 4th Floor Rwenzori Towers (Wing B).
4.2. Reporting suspicious transactions and certain cash transactions By virtue of section
9
of the AMLA (as amended), Legal Professionals are required to report to the FIA if they suspect or have reasonable grounds to suspect that; A transaction or attempted transaction involves proceeds of crime or, A transaction or attempted transaction involves funds related or linked to or to be used for money laundering or A transaction or attempted transaction involves funds related or linked to or to be used for terrorism financing, regardless of the value of the transaction.
According to section
9(2)
of the AMLA, the STR must be submitted within two (2) working days of the date the transaction was deemed to be suspicious.
According to Regulation 12(7) and (8) of the Anti-Terrorism Regulations 2016, you must submit an STR to the FIA immediately if a designated entity* attempts to enter into a transaction or continue a business relationship. You must not enter into or continue a business transaction or business relationship with a designated entity.
*A designated entity means any individual or entity and their associates designated as terrorist entities by the United Nations Security Council (UNSC). You can access the Security Council of the United Nations List ("the UN list") on the UN website.
Lawyers should consider whether they should continue to act for a client when they have to submit an STR on that client. A relevant factor to consider would be whether they reasonably believe that to delay or to stop or the failure to proceed might make a client suspicious that a report may be or may have been made or that an investigation may commence or already has commenced.
a) Defining Knowledge and Suspicion The first criterion provides that, before you become obliged to report, you must know or have reasonable grounds for suspecting, that some other person is engaged in money laundering or terrorism financing.
If you actually 'know' that your client is engaged in money laundering, then your situation is quite straight forward - the first criterion is met. However, knowledge can be inferred from the surrounding circumstances, e.g., a failure to ask obvious questions may be relied upon to imply knowledge.
You are also required to report if you have 'reasonable grounds' to suspect that the client or some other related person is engaged in money laundering or financing of terrorism. By virtue of this second, 'objective' test, the requirement to report will apply to you if based on the facts of the particular case, a person of your qualifications and experience would be expected to draw the conclusion that those facts should have led to a suspicion of money laundering. The main purpose of the objective test is to ensure that Lawyers (and other regulated persons) are not able to argue that they failed to report because they had no conscious awareness of the money laundering activity, for example by turning a blind eye to incriminating information which was available to them, or by claiming that they simply did not realize that the activity concerned amounted to money laundering.
b) Attempted Transactions You also have to pay attention to suspicious attempted transactions. If a client attempts to conduct a transaction, but for whatever reason that transaction is not completed, and you think that the attempted transaction is suspicious, you must report it to the FIA.
Example of suspicious attempted transaction: a client wants you to form a company for him. He is vague on what are the proposed company's business activities and he presents you with cash to cover your fees and incorporation fees. You ask him for identification and he delays in providing it but keeps pressing you to form the company. Subsequently, he terminates the transaction. If you think that this transaction is related to some crime, you have to report that attempted transaction to the FIA. On the other hand, a client simply seeking your advice on how to form a company and how long it takes would not be sufficient for being an attempted transaction.
NOTE: It is only when you 'know' or 'reasonably suspect' that the funds are criminal proceeds or related to money laundering or financing of terrorism that you have to report. You do not have to know what the underlying criminal activity is or whether illegal activities occurred.
C) How to Identify a Suspicious Transaction/Activity
Lawyers should pay particular attention to the money laundering risks presented by the services which they offer to avoid being manipulated by criminals seeking to launder illicit proceeds. Lawyers are encouraged to make reasonable enquiries if they come across information which could form the beginning of a suspicion.
You are the one to determine whether a transaction or activity is suspicious based on your knowledge of the client and of the industry. You are better positioned to have a sense of particular transactions which appear to lack justification or cannot be rationalized as falling within the usual parameters of legitimate business. You will need to consider factors such as; is the transaction normal for that particular client or is it a transaction which is a typical i.e. unusual; as well as the payment methods.
In making your assessment, consider some of the functions performed by Lawyers that are the most useful to the potential launderer such as: Financial and tax advice - Criminals with large sums of money to invest may pose as individuals hoping to minimize their tax liabilities or desiring to place assets out of reach in order to secure future liabilities; Creation of corporate vehicles or other complex legal arrangements (e.g. trusts) - such structures may serve to confuse or disguise the links between the proceeds of a crime and the criminal; Buying or selling of property - Property transfers serve as either the cover for transfers of illegal funds (layering stage) or else they represent the final investment of these proceeds after the proceeds have passed through the laundering process (integration stage); Performing financial transactions - Lawyers may carry out various financial operations on behalf of the client (e.g., cash deposits or withdrawals on accounts, retail foreign exchange operations, issuing and cashing cheques, purchase and sale of stock, sending and receiving international funds transfers, etc.); and Gaining introductions to financial institutions.
The set of circumstances giving rise to an unusual transaction or arrangement, and which may provide reasonable grounds for concluding that it is suspicious, will depend on the client and the transaction or service in question. Industry-specific indicators would also help you and your employees to better identify suspicious transactions whether completed or attempted.
Consider the following red flags when you act on behalf of a client: Activities which have no apparent purpose, or which make no obvious economic sense (including where a person makes an unusual loss), or which involve apparently unnecessary complexity; The use of non-resident accounts, companies or structures in circumstances where the client's needs do not appear to support such economic requirements; Where the activities being undertaken by the client, or the size or pattern of transactions are, without reasonable explanation, out of the ordinary range of services normally requested or are inconsistent with your experience in relation to the particular client; Excessively obstructive or secretive client; Client is reluctant to provide identity documents; Purpose of instructions, legal services and transactions is unclear; Transactions involve unusual levels of funds or cash; Property transactions which are unusual/uncommon; Transactions involving countries outside Uganda; Transactions related to offshore business activity; Unusual instructions; Changing instructions; Unusual retainers; and
Unexpected deposits into clients' account.
It is important to note that it is not only cash transactions that may be suspicious. Money laundering includes the layering and integrating stages where there is no more cash, but only funds that are moved around within the financial system while trying to confuse the money trail. It can also be of any amount. If you suspect a transaction of any amount to be suspicious, you must report it to the FIA.
4.3. Reporting Terrorist Funds
In accordance with regulation 12(7) and (8) of the Anti-Terrorism Regulations 2016, Lawyers must report immediately to the FIA the existence of funds within their business where they know or have reasonable grounds to suspect that the funds belong to an individual or legal entity who:
commits terrorist acts or participates in or facilitates the commission of terrorist acts or the financing of terrorism; or is a designated entity.
You must report immediately to the FIA where you know or have reasonable grounds to believe that a person or entity named on the UNSC sanctions' list or the list circulated by the FIA, has funds in Uganda.
You can access the UNSC Sanctions' list ("the UN list") by visiting the United Nations website.
4.4. Reporting Cash Transactions By virtue of section
8
of the AMLA, Lawyers are required to report all cash and monetary transactions equivalent to or exceeding one thousand currency points, which is equivalent to twenty million Uganda shillings (UGX. 20,000,000).
4.5. Exemption from Reporting Duties
As per the FATF standards, as well as section
9(5)
of the AMLA (as amended), Lawyers, notaries, and other independent legal professionals are not required to report suspicious transactions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.
4.6. Undertake Customer Due Diligence (CDD) Measures
Under section
6
of the AMLA (as amended), the general principle is that a Lawyer should establish satisfactorily that he is dealing with a real person or organization (not fictitious) and obtain identification evidence sufficient to establish that the client is that person or organization. In the case of an organization, you must ascertain that the client is duly authorized to act for the organization.
You must identify who the prospective client is and verify the person's identity by reference to independent and reliable source documents. Establishing the identity should include documentary identification issued by the government department or agency. You must also ask the source of funds for the transaction, for clients deemed as high risk (like Politically Exposed Persons). Client's identification 'Know Your Client' (KYC) must be obtained for clients who are individuals as well as companies. You must obtain satisfactory evidence of the client's identity before establishing a business relationship or completing a transaction for occasional clients.
Best Practice: While Lawyers are not obliged by the AML/CFT laws to identify, or perform any of the other CDD measures on clients when the
services provided to them fall outside of the AML/CFT specified activities, the FIA recommends that Lawyers should identify all clients to whom they wish to provide any legal service and verify their identification documents as a sound risk management measure.
Lawyers should ensure that they have in place a process for screening existing and prospective business relationships and clients against Sanctions Lists (see clause 4.2 and 4.3 above), and for performing background checks on them to identify any potentially adverse information (including associations with politically exposed persons (PEPs), or financial or other crimes) about them. In this regard, Lawyers should become familiar with the various tools available for these purposes, including but not limited to: publicly accessible government and intergovernmental sanctions lists; commercially available or subscription-based customer intelligence databases and due-diligence investigation services; and the use of internet search techniques.
Lawyers should be alert to situations in which existing or prospective business partners or clients appear unable or unwilling to divulge relevant ownership information or to grant any required permissions to third parties to divulge such information about them for corroboration or verification purposes.
Lawyers should be alert to customer due-diligence factors such as: Compatibility of the customer's profile (including their economic or financial resources, and their personal or professional circumstances) with the specifics (including nature, size, frequency) of the transaction or activities involved; Utilisation of complex or opaque legal structures or arrangements (such as trusts, foundations, personal investment companies,
investment funds, or offshore companies), which may tend to conceal the identity of the true beneficial owner or source of funds; Possible association with PEPs, especially in regard to foreign customers.
Customer due diligence (CDD) measures as defined in section 6(3) of the Anti-Money Laundering Act as amended include but are not limited to:
verify the identity of the client using reliable, independent source documents, data or information; identify and take reasonable measures to verify the identity of a beneficial owner; understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship to permit the accountable person to fulfil its obligations under the Act; if another person is acting on behalf of the customer, identify and verify the identity of that other person, and verify that person's authority to act on behalf of the customer; verify the identity of a customer using reliable, independent source documents, data or information, such as passports, birth certificates, driver's licences, identity cards, national identification card, utility bills, bank statements, partnership contracts and incorporation papers or other identification documents; verify the identity of the beneficial owner of the account, in the case of legal persons and other arrangements; conduct ongoing due diligence on all business relationships and scrutinise transactions undertaken throughout the course of the business relationship to ensure that the transactions are consistent with the accountable person's knowledge of the customer and the risk and business profile of the customer, and where necessary, the source of funds.
b) High Risk Clients/ Transactions
There are clients and types of transactions, services and products which may pose higher risk to your business and you are required to apply additional measures in those cases. The AML/CFT laws have identified certain high risks clients and require you to conduct enhanced due diligence ("EDD") on these clients. You may also determine that certain clients, transactions and products pose a higher risk to your business and apply EDD.
You must apply EDD measures to high risk clients, which include, but are not limited to: obtaining further information that may assist in establishing the identity of the person or entity; applying extra measures to verify any documents supplied; obtaining senior management approval for the new business relationship or transaction sought by the person or customer; establishing the source of funds of the person or entity; carrying out on-going monitoring of the business relationship.
The enhanced due diligence measures shall be applied at each stage of the customer due diligence process and shall continue to be applied on an on-going basis.
Best Practice: Large payments made in cash may also be suspicious and a sign of money laundering. A policy of not accepting cash payments above a certain limit or at all may reduce that risk. Since clients may attempt to circumvent such a policy by depositing cash directly into your client's account at a bank, you should avoid disclosing client's account
details as far as possible and make it clear that electronic transfer of funds is expected.
4.7. Ascertain whether the customer is acting for a Third Party
In accordance with section
6(20)
of the AMLA (as amended) and regulation 16 of the AML Regulations, you must take reasonable measures to determine whether the client is acting on behalf of a third party especially where you have to conduct EDD.
Such cases will include where the client is an agent of the third party who is the beneficiary and who is providing the funds for the transaction. In cases where a third party is involved, you must obtain information on the identity of the third party and their relationship with the client.
In deciding who the beneficial owner is in relation to a client who is not a private individual, (e.g., a company or trust) you should look behind the corporate entity to identify those who have ultimate control over the business and the company's assets, with particular attention paid to any shareholders or others who inject a significant proportion of the capital or financial support. Particular care should be taken to verify the legal existence and trading or economic purpose of corporates and to ensure that any person purporting to act on behalf of the company is fully authorized to do so.
In accordance with section
7
of the AMLA (as amended), Lawyers are required to keep a record of each and every transaction for a specified period. Record keeping is important for money laundering investigation which allows for swift reconstruction of individual transactions and
provides evidence for prosecution of money laundering and other criminal activities.
Lawyers must keep records in electronic or written form for a period of ten (10) years or such longer period as the FIA may direct. The records must also be kept for ten (10) years after the end of the business relationship or completion of a one-off transaction. The records to be kept include; a) All domestic and international transaction records; b) Source of funds declarations; c) Customer's identification records; d) Customer's information records; e) Copies of official corporate records; f) Copies of Suspicious Transaction Reports submitted by your staff to your anti-money laundering control officer; g) A register of copies of suspicious transaction reports submitted to the FIA; h) A register of all enquiries made by LEAs (date, nature of enquiry, name of officer, agency and powers being exercised) or other competent authority; i) The names, addresses, position titles and other official information pertaining to your staff; j) All wire transfer records; (originator and recipient identification data); and k) Other relevant records.
4.9. Internal Control Measures In accordance with Regulation 11 of the AML Regulations 2015, Legal Professionals should develop, adopt and implement internal control measures, policies and procedures for the prevention of money laundering and financing of terrorism.
Legal Professionals must take appropriate measures to ensure that all officers, employees, and agents engaged in dealing with clients or processing business transactions understand and comply with all applicable AML/CFT procedures.
Legal Professionals must appoint/designate a money laundering control officer (MLCO) with overall responsibility for AML/CFT compliance.
The MLCO must be in a senior managerial position and possesses sufficient professional experience and competence in the legal profession. The MLCO acts as the liaison point with the FIA and relevant supervisory authorities in Uganda, and commands the necessary independence and authority to train and supervise all other officers, employees, and agents within the firm.
The MLCO should at all times be resident in Uganda. In addition, it is highly recommended that an alternate to the MLCO is appointed to assume the prescribed responsibilities and duties in the MLCO's absence.
The MLCO's specific responsibilities include: establishing and maintaining a manual of compliance procedures; establishing an audit function to test AML/CFT procedures and systems; taking overall responsibility for all STRs; and ensuring that all officers, employees, and agents: are screened by the MLCO and other appropriate officers before recruitment;
are trained to recognize suspicious transactions and trends and particular risks associated with money laundering and financing of terrorism; and comply with all relevant obligations under AML/CFT laws and with the internal compliance manual.
MLCOs and reporting entities should review their arrangements on a regular basis, both to verify compliance with internal procedures and to ensure that those procedures are updated in light of any amendments to the AML/CFT legislation.
These guidelines do not specify the nature, timing, or content of the training that must be provided. This is a matter that must be addressed by the MLCO.
4.10. No Tipping-Off When you have made a suspicious transaction report to the FIA, you or any member of your staff must not disclose that you have made such a report or the content of such report to any person including the client. According to section
117
of the AMLA, it is an offence to deliberately tell any person, including the client, that you have or your business has filed a suspicious transaction report about the client's activities/transactions. You must also not disclose to anyone any matter which may prejudice money laundering or financing of terrorism investigation or proposed investigation.
The prohibition applies to any person acting, or purporting to act, on behalf of a Lawyer or law firm, including any agent, employee, partner, director or other officer, or any person engaged under a contract for services.
