Tax crimes that fuel money laundering activities

According to the latest Money Laundering and Terrorism Financing Tax Crimes and Revenue Risk Assessment Report for Uganda, tax crimes are the second source of illicit proceeds for money laundering, after corruption.

The Financial Intelligence Authority (FIA), in collaboration with the authors of the report, the Uganda Revenue Authority (URA), drew its conclusions based on crime statistics, prosecutions and total collections from tax-related cases between 2017 and 2022.

The report attempted to understand tax crimes and related money laundering risks. Reports say that money laundering can be a way of committing tax evasion through an asset concealment scheme (designed tax evasion through money laundering). It can also work as a mechanism for laundering illegal proceeds after the crime of tax evasion is committed.

Because tax evasion can lead to significant amounts of illicit income, tax evaders are now using money laundering to legitimize these incomes, committing more financial crimes in the process. Threat analysis showed that the threat of tax crimes at the domestic level is high, driven primarily by trade-based money laundering schemes where goods are smuggled across Uganda’s porous borders.

Proximity to countries prone to smuggling of precious stones, metals and other tradable goods makes it easier for tax evaders and launderers to conduct unregistered cross-border trade. There are also cases of undervaluation by tax evaders in order to evade taxes, falsify documents, under-declare and conceal.

Analysis of tax crimes enforcement data shows that between 2017 and 2020, the government dealt with tax crimes amounting to approximately Shs255 billion ($70.8 million). A total of 31,689 tax-related cases were investigated during the same period; 233 lawsuits were filed; 176 people were convicted in 168 cases. During the same period, the FIA ​​sent 41 intelligence reports involving tax crimes to the URA for investigation.

However, the report noted that although tax offenses are a major money laundering crime in Uganda, the number of money laundering investigations, prosecutions and convictions for tax offenses remains low or non-existent overall. He therefore recommended that there is an urgent need to continue money laundering investigations as well as tax crime investigations to trace relevant revenues, enforce collections and strengthen tax enforcement actions.

Identified taxpayers subject to different compliance improvement initiatives such as audits, inspections and enforcement actions are still small compared to taxpayer records and the number of potential eligible taxpayers in the country.

In addition, the government should consider enacting a law to facilitate the seizure/confiscation of non-conviction-based assets, build the capacities of all stakeholders and promote the formalization of the economy to increase tax revenue, reduce tax evasion and the associated crime of money laundering.

During the launch of the report in Kampala, FIA Executive Director Samuel Were Wandera said the report was an important step in strengthening the fight against tax crimes and related serious risks such as money laundering and terrorist financing. To the economic stability and financial integrity of Uganda.

He added that tax crimes generate significant amounts of illicit revenue and evaders are constantly finding new and sophisticated ways to hide their earnings, and therefore cooperation between the URA and FIA, as well as law enforcement agencies and other partners, is vital to effectively combat these challenges.

“The findings presented in this report will help us develop better policies and implementation strategies. They will also guide our risk-based audit approach, ensuring that resources are allocated where they are needed most, in line with international standards.”

Wandera also called on the URA to gain momentum in prosecuting tax crime offenders with the addition of the crime of money laundering to the charge sheet, as prosecution acts as a strong deterrent, discouraging potential criminals and strengthening public confidence in the tax system.

“Holding criminals accountable also protects our financial system and economy from exploitation by ensuring Uganda remains compliant with international frameworks such as the Financial Action Task Force recommendations. “Prosecution is therefore not just about recovering lost revenue, but also about upholding justice, maintaining the integrity of our tax system and protecting Uganda’s long-term development goals,” he said.

Catherine Kyokunda, URA’s legal affairs commissioner, said that although the tax body had established a strong legal framework, operational challenges remained, particularly in linking tax offenses to money laundering. He added that data showed that investigations into tax crimes were increasing but the tax-to-GDP ratio remained stable at 13 percent, calling for urgent targeted actions to combat tax crimes and money laundering.

“We face serious threats, especially regarding value added tax, corporate tax and PAYE tax. “These challenges are further compounded by trade-related money laundering, porous borders and the complexity of global corporations,” he said.

[email protected]