For close to two decades, Uganda has waited for the flow of first oil, which is expected to come with better schools, equipped hospitals, good roads, and infrastructure, and national development. In 2024, President Museveni said these would relieve the country of external debt, drive infrastructure and science development. Estimates place annual earnings at $2 billion (Shs6.9 trillion). While oil and gas are the loudest in Uganda’s mining sector, the country is hugely endowed.
In September, the Ministry of Energy and Mineral Development announced the discovery of high prospects for valuable minerals in the Karamoja Sub-region following a three-year geological mapping survey. Iron ore, copper, gold, and limestone, adding to the large pool of more than 50 minerals, including rare earth minerals, scattered across the country, including cobalt, tin, tungsten, and tantalum. These resources, experts say, hold the potential to transform the nation, driving domestic revenues, industrialisation, manufacturing, jobs, infrastructure, and trade.
According to the National Development Plan four, mineral development will contribute to the tenfold growth of the economy from $50 billion to $500 billion by 2040. This only works if the process and earnings are prudently handled. Yet an insidious threat in the form of illicit financial flows and money laundering in the sector, if uncurbed, could thwart these ambitions, the Auditor General,Mr Edward Akol, has warned. Mr Akol states in a November 2024 report that Uganda risks losing out on national development and transformation by failing to capitalise on its vast mineral resources.
If the government does not close the leakages in the form of illicit financial flows such as corruption, smuggling, tax evasion, and mispricing, they could wipe out earnings, undermine revenue mobilisation. Whereas extensive legal and regulatory frameworks have been put in place, loopholes remain, particularly due to the poor implementation of these provisions. ‘The potential of the mining sector’s contribution to Uganda’s Gross Domestic Product (GDP) may be affected by illicit financial flows. To benefit from revenues and royalties realised from the extractive industry for socioeconomic transformation, there is a need to curb and completely deal with the illicit financial flows from this industry,’ Mr Akol writes in his report that assessed the effectiveness of the legal, regulatory, and institutional frameworks in curbing illicit financial flows in the extractive industry.
Additionally, he warns that the lucrative sector could easily become a haven for money laundering that could taint the country’s reputation globally. A 2023 National Risk Assessment by the Financial Intelligence Authority identified the mining and extractive sector as a high-risk area for illicit financial flows. Illicit financial flows in the sector manifest in the form of illegal mineral exploitation, corruption, tax evasion, and illegal mineral trade, smuggling, among others.
‘The extractive industries sector is considered one of the most prone to illicit financial flows. To date, numerous national, regional, and international instruments have been adopted to target the extractive industries sector or combat illicit financial flows. However, the effectiveness of these instruments remains uncertain,’ the Financial Intelligence Authority states.
Illicit financial flows can be defined broadly as movements of money and value from one country to another that are illicitly earned, transferred, and or utilised. Capital being transferred is considered illicit when, first, it is transferred across countries illegally (money laundering, cash smuggling). Second, it results from an illegal act (drug trade, tax evasion). Lastly, it is used to finance an illegal activity (organised crime, terrorism). Uganda was only removed from the Financial Action Task Force (FATF) Grey list and the European Union’s list of high-risk countries in February 2024 after passing a raft of regulations to address money laundering in its jurisdiction. For nearly four years, the country had been grey-listed, meaning there were significant loopholes in its ability to prevent money laundering and terrorism financing.
This resulted in extra scrutiny. Ensuring it doesn’t slide back to this list means strict adherence and implementation of the laws, and constantly tackling new and emerging concerns, particularly in high-risk sectors like mining, real estate. The country will undergo its next assessment in 2028. Mr Samuel Were Wandera, the executive director of FIA, says the high-risk ratings results for the mining and extractive sector were due to weak controls, including the absence of a complete licensing and reporting framework, proximity to DR Congo, and the porous borders. ‘When you say it is high risk, we don’t mean that you have evidence that the laundering is high, but it is as if you don’t close the door of your house, he will be able to steal easily.
The controls around the sector in terms of safety framework were weak,’ he says. ‘If you have been in the media, most of the scams are basically related to gold. So many people are scammed in terms of gold trading. The investigations we are having in terms of that area are high.And the whole reason why you do a national risk assessment is basically to identify the threats, the vulnerabilities that exist. And then you come up with a remedial action plan, which then targets those sectors that have weaknesses. You flag them for them to address. When they come, most of the gaps which have been identified would be mitigated,’ Mr Wandera adds.
Loses
According to the Global Financial Integrity Policy Memo issued in July 2023, Uganda is estimated to lose more than Shs2 trillion annually to IFFs. In 2023, Mr Akol reported that the government lost revenue amounting to Shs68 billion from unlicensed gold exports. Additionally, officials could not verify the origin and purity of the gold. During the period under review government lost revenue of up Shs72.4 billion due to non-tax payment where 22 mineral categories were exported without any assessment. This was attributed to the non-existence of an enabling law to facilitate the collection of export levies for the listed minerals, which led to the loss of revenue to the government.
According to the World Bank, IFFs drain domestic resources and tax revenue needed to fund poverty-reducing programmes and infrastructure in developing countries, worsen inequalities, fuel instability, undermine governance, and damage public trust. Dr Arthur Bainomugisha, the executive director of the Advocates Coalition for Development and Environment (ACODE), says Illicit financial flows mean there is no transparency and no accountability, and there are people who will be marginalised. ‘You find that some of the companies that have been licensed to explore minerals, they just use that, they use the exploration license to even start mining. So they have been in exploration for years, yet actually they are mining quietly, disguised as exploration,” he says.
A study by Global Financial Integrity also pointed out that insufficient financial transparency and government accountability in Uganda, coupled with a regulatory system that can incentivise financial crimes, are helping to drive high levels of illicit financial inflows and outflows in the country. Dr Bainomugisha says closing these leakages will enable the Uganda Revenue Authority to increase its collections from the current 12 percent. ‘These financial flows certainly rob us of our ability to finance ourselves. Uganda is behind other regional countries in terms of revenue mobilisation. That is the money we lose. So, if we can cover that, we will be able to finance our budget to a large extent and be free from donor dependency,’ he says.
The auditors also red-flagged the continued exportation of unprocessed minerals despite a presidential directive banning the same. This led to a loss of tax revenue. URA attributed this to the absence of clear guidelines on what constitutes unprocessed minerals. By the time of the audit, the ministry had also not constituted the Uganda Mining Company. The ministry also had no model agreement to guide negotiations of any future agreements as mandated by law.
The lack of an approved format for the mining agreement exposed the government to potential loss of revenue. For now, however, officials from the Ministry of Energy and Mineral Development say the country has not lost any money to illicit financial flows.
‘Government is not losing revenue through illicit financial flows. This is because all mineral exports are closely monitored by both the Uganda Revenue Authority (URA), PMPU, and MEMD to ensure that. All taxes are collected before minerals are exported,’ the ministry’s Permanent Secretary, Ms Irene Batebe, explains.
She, however, acknowledges challenges in limited capacity to enforce compliance with the requirements of the Anti-Money Laundering Act (AMLA), for dealers in precious metals, adding that while it has not recorded any case of illicit financial flows, ‘through the Police Mineral Protection Unit (PMPU), the MEMD has registered a number of cases of fraud within the gold trade.
These cases mostly involve the theft of money from intending gold buyers by groups that sell fake gold.’ Ms Batebe says the loopholes highlighted in the audit report have since been addressed. The Uganda National Mining Company was inaugurated, and it commenced operationalisation. A model agreement was approved and Uganda has also joined global standards bodies, including the Extractive Industries Transparency Initiative, where it was admitted in 2020.
In 2020, Uganda also joined the Extractive Industries Transparency Initiative (EITI), a global standards initiative for promoting open and accountable management of oil, gas, and mineral resources.
On export of unprocessed minerals, Ms Batebe says: ‘The ministry has sensitised URA on the policy for mineral value addition that requires that minerals should be fully processed in the country; any exceptions shall be defined through a statutory instrument. Therefore, there is no ambiguity on what constitutes processed minerals for export.’ Mr Humphrey Asiimwe, the chief executive officer at Uganda Chamber of Mines and Petroleum, an association that brings together players in the oil and gas and mining sector, says transparency and appropriate investment will be key if Uganda is to maximise its mineral resource potential.
‘There is a lot more that needs to be done. Ugandans, by and large in this day are not very much aware of Uganda’s mineral potential. The government needs to invest a little more money. You have a whole country with eight to nine mining inspectors. We need way bridges to streamline the whole movement of ore and minerals within the country,’Mr Asiimwe says. He adds: ‘We also need to make sure that the Mining Act of 2022 has all the attendant regulation put in place. As we speak now, about two regulations are in place out of a possible seven regulations. So there is work that needs to be done to make sure that the mining sector is stabilised.’
WHAT EXPERTS SAY
Revenue gap. ‘These financial flows certainly rob us of our ability to finance ourselves. Uganda is behind other regional countries in terms of revenue mobilisation. That is the money we lose. So, if we can cover that, we will be able to finance our budget to a large extent and be free from donor dependency,’
Dr Arthur Bainomugisha, ED of Advocates Coalition for Development and Environment
Investment.
‘There is a lot more that needs to be done. Ugandans, by and large in this day are not very much aware of Uganda’s mineral potential. The government needs to invest a little more money. You have a whole country with eight to nine mining inspectors. We need weighbridges to streamline the movement of ore and minerals,’ Humphrey Asiimwe, CEO of Uganda Chamber of Mines and Petroleum.