IS THERE A CORRELATION BETWEEN OPACITY IN CAMPAIGN FINANCING AND MONEY LAUNDERING?
Is there a correlation between opacity in Campaign Financing and Money Laundering?
Early this month, the Pandora papers published by the International Consortium for Investigative Journalists (ICIJ), leaked 11.9 million documents which exposed the secret offshore accounts of Politically Exposed Persons, Celebrities, and Multinational companies. The ICIJ described the document leak as their most expansive exposé of financial secrecy.
Today, illicit financial flows (IFFs) are a major obstacle to development and have become an increasing source of concern for developed and developing countries.
Every year, developing countries lose a massive volume of wealth to corruption, tax evasion, and money laundering enabled by IFFs. These funds could help fill the gap of funding sustainable development and provide services.
Due to weaknesses in the financial systems in most countries, IFFs are thriving enabling corrupt politicians, public officials, and economic elites to hide their proceeds of corruption. This is threatening fundamental aspects of development, such as the rule of law, the quality, and accountability of democratic institutions.
In Uganda for instance, the lack of openness and transparency in sourcing for campaign funds by political parties and candidates that participated in the 2021 general elections, created a dark cloud that may have allowed the proceeds from international predicate offenses like syndicated corruption, fraud, illegal drug smuggling, illegal wildlife trafficking, illegal trafficking in human organs, and illegal human trafficking among others to be laundered through financing election campaigns and acquisition of luxurious/expensive real estate properties as well as the purchase of luxurious automobiles.
During the past 8-10 years, Uganda has seen a spontaneous rise in construction of expensive apartments sprouting at an unprecedented speed. Once completed, these properties are sold off at a relatively high price, thus begging the question, who are the buyers and where does the money come from?
Laundering money through election campaigns and making real estate acquisitions becomes easier during campaign time because political parties and candidates need the money and this money is believed to be channeled through international companies with running government contracts or those that are vying to bid on public procurement, who donated handsomely to the parties and candidates that were believed to have the potential to win.
Conversely, because there is a common belief that candidates sell off their properties before, during, or immediately after campaigns, laundering money through acquisition of real estate, is able to go on almost unnoticed. In such circumstances, money will be wired into real estate accounts to buy luxury/expensive apartments. At the end of the day, the money from proceeds of crime will be cleaned/ laundered. There are a number of countries that have been reported in the international media for having provided safe haven for money launders and one of them is South Sudan.
Discrete interviews with purposively selected real estate agents in Kampala revealed that there was a spike in demand for acquisition of high-end apartments throughout the campaign period. Was this a coincidence, or is there a causative explanation to it? The SecretKnown is that world over, investment in real estate has been used across the world as a way of laundering dirty money.
In the context of regulating financial crimes, using Anti-Money Laundering (AML) instruments, political parties and candidates are by default classified as Politically Exposed Persons (PEP). A politically exposed person generally presents a higher risk for potential involvement in bribery, and corruption by virtue of the position and influence they may hold in the corridors of power.
The SecretsKnown research team learned that the ruling NRM party and its candidates were particularly targeted by money laundering middlemen. Their impetus was understandably to ensure that the political status stays in place could be traced from the report on illegal wildlife trafficking (IWT) published by the Basel Institute on Governance in March 2021. The report attributes this to among other factors;
- Concealment and collusion facilitate the entry, transit, and exit of IWT in Uganda.
- Trafficking networks capitalize on a governance context with high levels of corruption that offers opportunities for illegal activities to flourish.
- The weak law enforcement system offers many entry points to compromise the law enforcement chain
The authors of this report are thus inclined to argue that it would be in the best interest of money laundering agents to invest massively in protecting the political status quo including ensuring that they also have apologists in sizable numbers in Parliament and District councils. One way of achieving this would be to significantly bankroll the party in power and particular candidates who have the potential to sway in Parliament and where possible also in District Councils.
ACFIM election monitors reported that right from the NRM party primary elections through campaigns for the general elections 2021, there was too much money flowing and it was mindboggling where it came from. Discreet interviews with some of the top spending candidates revealed that in many cases, these candidates did not have all the money to spend from the start but “found it” during the course of the campaigns. The question is: where did they find it from? This is where national financial intelligence institutions should take keen interest.
The middlemen for money laundering have been rumored to have already infiltrated the technical wings of state regulatory institutions and have compromised some greedy individuals there using the power of illicit money. Capture of regulatory institutions poses a challenge to enforcement of international instruments against money laundering and terror financing.
ACFIM urges the Financial Intelligence Authority (FIA) to take keen interest in establishing the source of funds that political parties spend on election campaigns; understand the fuel that keeps the real estate sector in Uganda alive and well even when other parts of the economy are going through financial distress. Some of the questions the authors of the report are putting forward are:
- Who are the people that buy off the expensive real estate apartments?
- To what extent are the financial transactions of real estate agents monitored?
- What is the capacity and integrity of the FIA in terms of taking meaningful measures in order to combat money laundering and terrorist financing?
- How open and transparent is the reporting system of FIA within the broader ecosystem of the Financial Action task Force (FATF)?
SecretsKnown is cognizant of the fact that although global attention on combating IFFs has increased, the political battle is far from being won as lobbyists for the offshore industry, including the large law and accounting firms as well as big banks, seek to obstruct progress. This is why visionary political leaders together with NGOs, trade unions, and critical academics must keep up the pressure.
There is also need for laws and international coordination that guarantee transparency in the future – and we have to protect the whistleblowers when they expose the wrongdoings at present and in the future.