BoU dragged to court over Crane Bank

Jul 21, 2017

He is seeking a declaration that between 2013 and 2016, BoU failed to take corrective action in respect of Crane Bank

A concerned Ugandan has finally filed a suit against Bank of Uganda (BoU), in which he accuses the central bank of allegedly failing to supervise the management and affairs of Crane Bank.

In a suit number 362 of 2017 filed through Kashillingi, Rugaba and associates, Derrick Nsereko, an aggrieved citizen, seeks a declaration from court that BoU had failed to supervise Crane Bank as per part VIII of the Financial Institutions Act 2004 (amended in 2016).

Nsereko is also seeking a declaration that between 2013 and 2016, BoU failed to take corrective action in respect of Crane Bank thereby putting depositors' funds at risk. He is also seeking a declaration that BoU "acted in bad faith, negligently, in breach of her duties towards the plaintiff and other citizens of Uganda in repeatedly giving Crane Bank clean financial bills of health."

As a result, Nsereko wants BoU to pay him punitive damages, general damages, interest and costs of the suit. Earlier on July 12, Nsereko gave the central bank a notice in which he expressed his intension to sue BoU, saying it had regularly given Crane Bank a "clean financial bill of health" since its licensing in 1995, and wondered why this changed all of a sudden.

"It will be recalled that sometime in 2016, the governor BoU (Emmanuel Tumusiime Mutebile) publically observed that Crane Bank had a clean financial bill of health. It now transpires that these authoritative assurances were not entirely true," Nsereko contends.

He observed that BoU either failed in exercising its supervisory role or its officers colluded with the management of Crane Bank in doctoring reports giving Crane Bank a clean financial bill of health.

"As a result of BoU's failings, neglect of duty or intransigence, Crane Bank was largely owned by one individual contrary to the provisions of the FIA, had several fraudulent remittances undetected by BOU (while supervising and issuing clean financial health bills), did not remit colossal amounts of money to the National Social Security Fund (NSSF) thereby depriving workers of their retirement benefits interalia," Nsereko argued.

According to BoU investigations, Crane Bank has over the years not been remitting workers savings to NSSF and that this amounted to sh52b.

BoU sued Crane Bank and its proprietor, Sudhir Rupaleria, seeking court to order him pay sh400b that the central bank claims was lost in fraudulent transactions. If Sudhir agrees to an out-of-court settlement, however, BoU wants him to pay sh311b.

But Nsereko said he intends to seek a declaratory order from court against BoU over its alleged failure to supervise Crane Bank, collusion, corruption and fraud in issuance of clean financial health bills in respect of Crane Bank.

Nsereko also alleges that the central bank failed to take any corrective action as enacted under part IX of the FIA, and that he intends to seek orders holding responsible BoU officers personally liable for infraction of duty and other reliefs.

"Clearly, the failure in carrying out this statutory duty implies that the entire banking and financial sector in Uganda is at risk in the hands of BoU as presently constituted, manned and managed," he asserted.

As a matter of great public importance, Nsereko said he also intends to interest the Inspector General of Government and Police in conducting criminal investigations and take action against the responsible BoU officers.

A copy of the document seen by New Vision shows that BoU received the notice on the same day it was drafted and delivered (July 12).

When asked why they failed to detect all the alleged fraud including non-remittance of workers' NSSF benefits over years, the central bank's director communications, Christine Alupo, said; "This is a case before court, so you will appreciate that we are constrained in discussing the matter until the court case is resolved."

When contacted about the sh52.9b workers' savings that were not remitted over years, NSSF managing director, Richard Byarugaba, said they did not know that Crane Bank was not remitting workers' money. Byarugaba said they were in touch with BoU to recover the money.

BOU took over the management of Crane Bank arguing that it lacked sufficient capital and posed a systemic risk to the financial system. Crane Bank, which was ranked as Uganda's fourth largest financial institution at the end of 2014 plunged to the 23rd position by the end of last year after it posted a sh3.1b net loss.

The bank reported a consolidated after-tax loss of sh12.5b, with operations in Rwanda accounting for sh9.5b of the total loss. The net loss in 2015 came after the bank made a consolidated after-tax profit of sh47.5b in 2014; it would have been higher at sh51b had it not been for the losses from its operations in Rwanda.      

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