Cigarette Smuggling Linked to Money Laundering
laundering in the country established a link between cigarette smuggling, money laundering and terrorism financing
By Sarah Kisakye
A probe into mushrooming smuggling operations at Busia border, involving bales of cigarettes entering Uganda illegally from Kenya, indicates that the practice is operating at the criminal syndicate level.
A 2018 study on smuggling and associated money laundering in Eastern and Southern Africa by the Financial Intelligence Authority (FIA) a government agency established to monitor, investigate, and combat money laundering in the country established a link between cigarette smuggling, money laundering and terrorism financing.
The study defines smuggling as the illegal movement of goods from one jurisdiction to another, often involving the movement of goods through illegal border crossings. It notes that the smuggling of cigarettes is dominated by both local and foreign individuals and businesses, who operate well-orchestrated syndicates.
In a period of six months, Uganda Revenue Authority (URA) has impounded Supermatch cigarettes from Kenya through Busia border into Uganda worth UGX 2.5 billion in taxes.
In 2017, URA acquired UGX 74 billion worth of taxes from cigarette imports, making it a high value product.
Fears are high at the FIA that money obtained through smuggling such as the UGX 2.5 billion recently impounded in cigarette smuggling are being used to facilitate money laundering and terrorism financing. Uganda is also being deprived of huge sums of money in form of taxes that could have been raised through cigarette imports.
Uganda performs poorly on the actual collection of tax compared with the potential levels that could be collected, with URA estimating UGX
8.38 trillion in 2013/14 to UGX 14.66 trillion in 2017/18.
How cigarette smuggling happens
Uganda itself is not a manufacturing place for cigarettes, but the FIA report says that smugglers use all sorts of tricks to get cigarettes into the country. Most of the smuggling is committed by a combination of local and/or foreign truck drivers, individuals, local traders and business people.
Many of the smugglers opt to use road transportation because it is the most common mode of transport between neighboring states and the chances of being apprehended are slim due to the high volume of traffic on the roads.
First, smugglers conceal the cigarettes in container trucks, buses or through the use of foot smugglers known as “runners” who carry the cigarettes in specially built rucksacks across the border, heading to pre-arranged destinations where smuggling syndicates can access them.
To avoid being apprehended, some smugglers disguise themselves as travellers.
Amongst the types of cigarettes being smuggled are Rex, Director, Supermatch and Safari.
Dennis Omorick is a bus operator at Arua Park. He has witnessed smugglers trying to send cigarettes across the border. “I don’t think ‘us’ the common people are involved,” he says. “Maybe what I can say is, that we are taken advantage of either knowingly or unknowingly. For instance a passenger comes and puts luggage into the bus, you can’t know that this person may be in a smuggling racket. On the side of ‘’knowingly’’, some people are approached by rich middlemen to find ways of smuggling things into Uganda. They do it at their own risk because they want money.”
Rita Musira, spokesperson for Uganda Revenue Authority (URA) says, “We insist on use of tax stamps for all cigarettes sold in Uganda. If we find you selling cigarettes without stamps we confiscate everything.”
I take a stroll in the city center asking cigarette sellers how they got their merchandise. Most of them are women seated by the roadside, selling cigarettes with sweets and biscuits.
“Mind your own business, journalists are nosy,” one of them says. “You like sticking your noses into everything.” “Will you report us to the authorities?” another asks, fearful of losing her income. “We just do what we have to do to make ends meet,” says another.
Many of the ladies selling cigarettes at the roadside do not have tax stamps. They could be in trouble if URA came to pay them a visit.
Linking cigarette smuggling to money laundering
The FIA study estimates that in total Uganda loses about UGX 5 trillion every year through money laundering and illicit financial flows.
Money laundering works by smugglers running legitimate businesses such as cash couriers, domestic and international banking systems, currency exchange, purchase of real estate property and vehicles amongst other revenue generation sources were they hide the criminal origin of their money, making it appear as a legitimate business, yet it is a cover up for underground illegal activities.
There are also more fears that laundered money is destabilising the economic system of the country and may be channeled to finance terrorism activities, such as in Somalia, where terrorist group al-Shabaab continues to threaten regional security.
Samuel Wandera Were, the Deputy Executive Director of the Financial Intelligence Authority (FIA), notes that East Africa as a region faces the twin threats of money laundering and terrorism linked to smuggling. “If money launderer get money from smuggling, they will conceal it and make profits. If they are terrorists, they would have gotten funds in their possession to advance their actions of committing terrorism,” he says.
Law enforcement units such as the URA and Uganda Police are working towards curtailing smugglers and other financial crimes, commercial banks and forex bureaus are investigating large sums of money wired to banks to ensure the source is legitimate.
Vincent Sekate, the spokesperson for the Criminal Investigations Directive, says, “If a bank account gets more than 20milion UGX suddenly, then that person is tasked to explain the source of their income.”
However there are challenges. Wandera Were says that limited resources allocated towards combating the illicit practice, alongside a lack of data on related money laundering, has undermined the country’s ability to undertake adequate staff training and prosecute cases. In addition, weak control and enforcement measures mean that smuggling kingpins are rarely caught.
Corruption and bribery among public officials, including border security officers, is also hampering the process.
Despite the challenges, URA says they are doing their best to curb the crime. “We’ve opened up new stations in porous areas like in Amudat in Karamoja sub-region,” adds Rita Musira, the URA spokesperson. “The penalties are very high once we net smugglers. We confiscate the goods and destroy them at your cost and also the vehicle carrying the goods is forfeited. Surveillance is done on both land and water, at Lake Victoria. We also have scanners at our borders.”
In the long run, if the practice is not effectively handled, the effects not only to Uganda but the entire East African region will be far-reaching and long-lasting, and may continue to jeopardize economic stability.
This story was produced by Reality check Uganda. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation in partnership with The African Centre for Media Excellence. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.