< ET TU, BOU?

Au­di­tor-gen­eral re­leases damn­ing re­port on il­le­gal­i­ties at the Bank of Uganda.

The East African - - FRONT PAGE - By DICTA ASIIMWE Special Cor­re­spon­dent

Uganda’s Au­di­tor-gen­eral John Muwanga has re­leased a re­port de­tail­ing ir­reg­u­lar­i­ties and il­le­gal­i­ties al­legedly com­mit­ted by the cen­tral bank in the clo­sure and sale of non-per­form­ing com­mer­cial banks.

Over the past 25 years, the Bank of Uganda has closed seven com­mer­cial banks, some of whose pro­pri­etors and share­hold­ers have ac­cused it of ir­reg­u­lar­i­ties.

At a re­cent pub­lic hear­ing, former Co-op­er­a­tive Bank cus­tomers and share­hold­ers asked Min­is­ter of Fi­nance Ma­tia Ka­saija to pay back their eq­uity and de­posits, which they claimed the govern­ment “stole.” The Na­tional Bank of Com­merce and Crane Bank own­ers have gone to court to re­cover their as­sets.

In his 80 page re­port, the Au­di­tor Gen­eral says that given its con­duct dur­ing the liq­ui­da­tion process, Uganda’s cen­tral bank lacks the dis­ci­pline or will­ing­ness to per­form ba­sic busi­ness prac­tices like keep­ing ledgers and records of their trans­ac­tions dur­ing the liq­ui­da­tion of the closed com­mer­cial banks.

The only ledgers and records of the trans­ac­tions that BOU could pro­duce dur­ing the au­dit were those kept by in­sti­tu­tions that the cen­tral bank would hired to han­dle the liq­ui­da­tion.

The re­port states that of­fi­cials at BOU com­mit­ted il­le­gal­i­ties dur­ing liq­ui­da­tion of the banks. It adds that the most likely mo­ti­va­tion was for their per­sonal gain and not for the good of the fi­nan­cial sec­tor.

BOU di­rec­tor of com­mu­ni­ca­tions Char­ity Mugumya said, “The re­port was leaked be­fore it was ready.” She added that they were dis­cussing the re­port with the Au­di­tor-gen­eral and would is­sue an of­fi­cial re­sponse af­ter that process.

Mr Muwanga sub­mit­ted the re­port to Speaker of par­lia­ment Re­becca Kadaga on Au­gust 17. It cov­ers the process fol­lowed by BOU to liq­ui­date the com­mer­cial banks, and de­tails a trail of cor­rup­tion al­le­ga­tions fea­tur­ing of­fi­cials un­able to pro­vide proof of the process they claimed to have fol­lowed.

One such ex­am­ple, ac­cord­ing the re­port, is that the cen­tral bank claimed to have sold Ush570.4 bil­lion ($148.8 mil­lion) worth of Crane Bank’s bad loans to DFCU Bank. The re­port says that BOU of­fi­cials sold a good loan book worth Ush588.6 bil­lion ($153.6 mil- lion) to DFCU Bank at a cost of Ush200 bil­lion ($52.2 mil­lion).

The re­port fur­ther says that when BOU of­fi­cials were asked about this anom­aly they said that DFCU had been sold the bad loan book as well. The au­di­tor gen­eral says that DFCU Bank de­cided what it wanted to pay for Crane Bank’s as­sets, and that is the amount that the cen­tral bank ac­cepted.

Ev­i­dence of fraud

“There is ev­i­dence of fraud and col­lu­sion by BOU of­fi­cials, trans­ac­tion ad­vi­sors and buyer,” says the re­port.

DFCU Bank had ear­lier ben­e­fited from the sale of Global Trust Bank (GTB). The Au­di­tor-gen­eral’s re­port shows that DFCU bought well se­cured loans be­long­ing to GTB at a dis­count, which is il­le­gal un­der the Fi­nan­cial In­sti­tu­tions Act.

The re­port also shows that BOU sold the as­sets of the Na­tional Bank of Com­merce to Crane Bank at a dis­count.

Sev­erino Twinobus­ingye, a lawyer for the pro­pri­etors of NBC, says the cen­tral bank ig­nored a court in­junc­tion block­ing the sale, al­leg­ing that of­fi­cials had vested in­ter­ests.

In­ter­na­tional Credit Bank (ICB), Green­land Bank, Co­op­er­a­tive Bank, Global Trust Bank and Na­tional Bank of Com­merce, with as­sets worth Ush164 bil­lion ($42.8 mil­lion) were sold at a dis­count of 80 per cent, the re­port shows.

In the cases of ICB, Green­land and Co-op­er­a­tive Bank, whose as­sets were sold at a 93 per cent dis­count, the BOU re­jected an of­fer of $10 mil­lion ($37.9 mil­lion) in May 2007, but ac­cepted half that price seven months later. The cen­tral bank ac­cepted 26 per cent of the value of loans that were well doc­u­mented, with le­gal and eq­ui­table mort­gages.

Uganda’s Au­di­tor Gen­eral sub­mit­ted a re­port al­leg­ing fraud by of­fi­cials of the Bank of Uganda.

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