Owor reminds Katto he is still on oath.
Katto: My lord, before we proceed this morning, I seek the indulgence of the Commission to make clarifications that I consider very crucial and at the crux of this inquiry.
Witness number 35, Emma Katto, returns to the commission at 10:00am accompanied by one of his lawyers, Bob Kasango. The panel is as usual. Anne Mugisa and Milton Olupot covered the proceedings.
Owor reminds Katto he is still on oath.
Katto: My lord, before we proceed this morning, I seek the indulgence of the Commission to make clarifications that I consider very crucial and at the crux of this inquiry. In particular, I wish to react to the lead story in the New Vision newspaper of yesterday regarding the alleged cost of the MI-24 choppers. The impression created by that article is not only irresponsible but dangerous. Dangerous, my lord, because I sit here today to answer questions by this commission but it is also very true that I face the court of public opinion out there and unlike you, my lord, the public out there can be extremely irrational in their reaction to such baseless reports. This commission has the relevant documents and anybody in their right mind would make a proper reading of these documents before making outrageous conclusions.
To say that these choppers cost US$300,000 is an insult even to the manufacturer. The truth of the matter is that if anyone cared to know, the US$308,000 had absolutely no correlation with the CSC/MOD contract. The remittance was mane one month before even the first promissory notes (PNs) were discounted. So how can anybody possibly make such conclusions in the face of so clear documentation.
Finally, and perhaps most important is the wrong perception that CSC got US$6,500,000 from the government of Uganda. The truth is that CSC was paid in Uganda shillings a total of sh6.2b in form of PNs, and after discounting the PNs the amount reduced to sh5.4b. I say all this because it is imperative that to reach a correct end, one must have a correct basis. And also because the public who don't sit in here deserve and have a right to know the truth. My lord, with your assistance, I request a retraction of the same headline with similar prominence from the New Vision. I thank you my lord for listening to me.
Ssebutinde: I think the press is listening, but for us as the commission, we do not rely on the press to reach our conclusions. We do our work independently. The other thing is that we do not have direct control over the press.
Owor: Last time..., a witness was giving testimony on how he assisted Rwanda get their choppers. How did Emmanuel Ndahiro come in?
Katto: I had absolutely nothing to do with the Rwanda choppers...I am not even aware of this helicopter that was delivered to Uganda.
Owor: There is a letter here talking about a chopper parked at Entebbe Airbase and after your failure to provide the last two, you promised you would sell this one, but this was from an Egyptian company.
Katto: The helicopter was offered to CSC by an Egyptian company and then we also offered it to the Ministry of defence (MOD) to salvage the contract, it never belonged to Rwanda.
Kiryabwire: Did this have anything to do with the MI-24s identified for Uganda?
Katto: Not at all.
Ssebutinde: How did this aircraft come to be packed ar Entebbe when it was not bought by government?
Katto: My lord, it was neither imported by CSC so I do not know. It was just offered to us at Entebbe.
Ssebutinde: So it was eventually bought directly by government. Were you acting as middlemen?
Katto: It was offered to us by a man called Sharif Almansi, an Egyptian. (Katto denied involvement in the negotiations. He said his co-directors, Chris Smith and Max Waterman, only briefed him)
Owor: it would help if you could tell the commission what was in the mind of CSC when you were negotiating this contract... when did you first see this contract?
Katto: I was invited to witness the signing of the contract, this was the first time I saw it. Not being an expert, I was not involved in its formulation.
Kiryabwire: You must have derived satisfaction from the document and you approved it?
Katto: I was satisfied and the buyer was equally satisfied and there was no problem.
Owor: At the time of signing, had you seen the schedules?
Katto: No, my lord, I hadn't seen them.
Owor: There is the problem of the word, overhaul, in the contract and the non-specification of the goods...
Katto: That should have been the responsibility of the buyer.
Owor: Were you aware of the goods you were to deliver?
Katto: I had a rough idea and I did not concern myself. I was only aware that the ministry was buying second-hand helicopters.
Owor: What would be the cost of each helicopter?
Owor: In what state would this helicopter be?
Katto: Used, overhauled helicopters, my lord.
Owor: Who was to pay for the training...
Katto: The ministry.
Ssebutinde: Are you saying it was outside the US$12.9m.
Katto: It was inclusive in the contract, my lord. This was the total package, it was all inclusive.
Owor: Look at the payments, what was the prevailing rate of exchange?
Katto: I believe it was sh1,030-sh1,040 for a dollar, it is a long time. I do not recall well, my lord.
Owor: The testimony of Mr. Bitangaro yesterday said Chris Smith had problems with the inspection and dispatch of the goods, schedule 4.2 (C) .
Katto: I do not see why Chris Smith had a problem because it is clear that the goods were made available and were inspected prior to dispatch.
Owor: The agreement was that the choppers are inspected prior to dispatch and in case of disagreement, they would be replaced prior to dispatch. Was this workable?
Katto: If the team that inspected the goods were not satisfied, they would reject them.
Owor: We have evidence that the team did not have enough time to inspect the choppers.
Katto: I am not aware of this. What I know is that they inspected the goods and accepted them and they wrote a report to that effect.
Owor: Mr. Katto, do you know what individual warranties looked like?
Katto: I do not know my lord, these are technical matters.
Owor: Could you explain the joint venture between BT and CSC?
Katto: I was not aware.
Owor: Do you have the copy of the contract?
Katto: I do not have the contract as I said I had a fall out with my co-directors...
Ssebutinde: What documents do you have, sir?
Katto: I have the documents on Ruyondo and I have an explanation on the registration documents as I managed to talk to my secretary and got the explanation on what happened.
Owor: Were you involved in any negotiations?
Katto: I was not involved.
Ssebutinde: Not even in the price negotiations?
Katto: I have never been involved in any contractual negotiations.
Ssebutinde: Listening to you, one would conclude that you were not at all involved, absolutely not involved.
Katto: Not to a large extent, my lord.
Ssebutinde: Let me tell you, you are the director of this company and you will not escape by denying being involved. You are liable for what happened in it...
Katto: I do not deny that I am the director of the company. I am only telling the truth. I swore to tell the truth.
Owor: How did ICB come in?
Katto: The company approached the bank to ask for a performance bond.
Owor: Why ICB?
Katto: The whole contract revolved around supply of helicopters and government did not have money and the company would have to accept Promissory Notes (PNs). A couple of other banks, both local and international, were approached and the only bank that accepted was ICB.
Owor: Do you have written proof that other banks were approached?
Katto: No, we only made calls and they were not willing. (Katto denies conflict of interest because ICB belonged to his family. He also says he did not know ICB's track record) Kiryabwire: There is testimony by your brother Patrick Katto that there was pressure from you to have the guarantee salvaged, there was tremendous pressure to have the transaction through ICB?
Katto: The pressure was as a result of the pressure from the buyer to have the choppers.
Ssebutinde: Pressure from who directly?
Kiryabwire: Who personally pressurised you?
Katto: Dr. Mbonye.
Ssebutinde: Did he also pressurise you to channel the guarantee through ICB?
Katto: Not at all. Dr. Mbonye wanted performance.
Owor: How did gold trust Bank come on board?
Katto: They came on board but they were not taken either.
Owor: They were accepted.
Ssebutinde: What were the guarantees you took out to guarantee yourselves?
Katto: ICB took a performance bond of US$6.4m.
Owor: Would you know why Gold trust was excluded?
Katto: The counter guarantee was negotiated solely by ICB as it could not be a party to the contract.
Ssebutinde: BOU was informed that Gold trust would guarantee US$3.2m while ICB guaranteed the other US$3.2m, and having been warned that ICB does not have the capacity, how could you go ahead and do exactly what you were warned not to do. We want to satisfy ourselves that the seller took out this guarantee in good faith. (The commission resumes after a short break. The judge asks Katto for the certificate of registration)
Katto: I have an explanation, my lord. I had wanted to put it in writing so that it can be quoted. Can I explain now?
Ssebutinde: Do explain.
Katto: The last time I was sure....at the time of registration, the memorandum and the articles of association were handed over to Lawrence Kawuma, the gentleman I talked about as having registered the company. Kawuma took it to the registrar. The registrar accepted then and also accepted the US$250 registration fee. He was given forms.
Now when he came back to me, I had travelled. He left the forms with the registrar...so I didn't fill in or follow up. He did not come back to me with the registered company. He left the forms with someone in the names of Kalema...from the registrar of companies. I've come with him.
Ssebutinde: Is Kalema here?
Katto: No Kalema is not here, but Kawuma is. (There is a long wait as someone goes out to look for Kawuma)
Owor: My be we can proceed as we wait. (she asks Katto if CSC took out an effective guarantee)
Katto: To all intents and purposes, we took out an effective guarantee and it was accepted by BOU and the Ministry of Defence.
Owor: Even after BOU rejected ICB?
Katto: Yes, it was a conditional guarantee...that the guarantee was to be in place until the goods are delivered.
Owor: Did you know if ICB had any money at the time?
Katto: It was in the belief that the bank would deliver.
Ssebutinde: So the bond was secured by yourselves?
Katto: It was secured by the bank.
Ssebutinde: The bank does not secure bonds. You are the customer, you deposit a certain amount...
Katto: We didn't put the money. We understood that the PNs would be used as security.
Ssebutinde: Were they secured?
Ssebutinde: What was the security?
Katto: the PNs.
Ssebutinde: What was supposed to happen to the promissory notes?
Katto: (gives answer in low voice)
Ssebutinde: When was the security to expire?
Katto: we never discussed it.
Ssebutinde: When was the bond to expire?
Katto: When the goods were delivered.
Ssebutinde: And accepted by the buyer
Katto: Yes, my lord.
Ssebutinde: Then the promissory notes would be held on to as security.
Katto: That wasn't the case.
Ssebutinde: What was the case then?
Katto: The PNs were used to buy the helicopters... the company wasn't requested for an alternative security for the PNs...so the PNs were used as security.
Kiryabwire: This is more complex than that. The PNs were discounted and the funds externalised. That exposes the bond. That is why we want to see the security of the bond. We must remember that BOU said that ICB had liquidity problems and could not handle the contract. Our second concern is that the bond was to remain in force until May 4, 1997. We know the goods were delivered in April 1998 long after the bond had expired. Our third concern is the writing that the agreement between CSC and Defence dated February 4, 1997. But we haven't seen an agreement of February 4...
Katto: All your assumptions are correct. We asked for a guarantee because it was required. We learnt of the irregularities in the press after the helicopters had been delivered. We did not know about the negotiations.
Ssebutinde: we can't let you off on a mere plea of ignorance. The bond was taken out by ICB on your instructions, so it was your performance guarantee. Mr Patrick Katto said here that it was up to the seller to extend the bond and the seller didn't.
Katto: We were not aware it expired...we are also aware that it was extended several times.
Ssebutinde: No, that is the Amex guarantee. I'm talking of the ICB one and I haven't even started on the Amex one...You can't sit here and tell us you weren't aware of this, you weren't aware of that.
Katto: We should have been, but we were not aware it expired.
Ssebutinde: So your performance guarantee was no longer guaranteed. So the responsibility rested on the seller...
Katto: I believe the buyer also should have made sure it was there.
Ssebutinde: I'm talking to you, not defence.
Katto: I believe the bond had relationship with the Amex guarantee. So if the Amex guarantee was renewed, it didn't make sense for the bank (ICB) to extend the bond.
Ssebutinde: Each one could stand on its own and it did stand on its own.
Katto: (defends it further saying that it was entertwined with the Amex guarantee)
Owor: The document of February is not dated but has a stamp where there is a date 5th February, 1997, and .... from Chris Smith...on the letter head of ICB.... (The man sent to collect Kawuma returns and whispers to the judge, then the judge looks up and addresses Katto)
Ssebutinde: Kawuma has taken off. If he ever existed, he has taken off.
Katto: He was here, my lord. I have witnesses, he was here.
Owor: (continues reading the document and reads two more) Which of the three should the commission take to be the guarantee?
Katto: The one of US$6.4m
Owor: (reads Smith's letter to ICB to open a dollar account...) explain how the letters of credit was supposed to work?
Katto: Mr Smith wrote it. He was a banker. It is even confusing me.
Ssebutinde: In your layman's understanding?
Katto: In my layman's understanding...half of the money was supposed to be security....I understood all the US$2m was supposed to be gotten once and this was the security.
Owor: But the bond was for US$6.4m.
Katto: These things were changing on a daily basis. I can't remember if this wasn't after the BOU had rejected the US$12m.
Ssebutinde: But you were asking ICB to give you a US$6.5m overdraft into your dollar account so you can purchase....
Katto: Then the US$12m came in pertinent...
Ssebutinde: Was your overdraft guaranteed?
Katto: I'm getting confused by the overdraft, bonds and guarantees.
Ssebutinde: Believe you me, I'm more confused. But if I were the director of CSC, I would have known if the overdraft was extended to my account.
Owor: (reads ICB letter allowing the overdraft)
Ssebutinde: So as the seller said, you hold the US$6.5m promissory notes as security. Then you tell the bank to extend to you US$6.5m as overdraft...So this is back-up security because that is your obligation...ICB didn't hold them and advanced them to you, then they are undermining the security of the buyer.
Katto: It seems so, my lord.
Ssebutinde: So the PNs were discounted and credited directly to your account, so there was no security at all?
Katto: Yes, it looks like it. But then I wasn't aware then.
Ssebutinde: You knew exactly what you were doing.
Katto: I'm telling the truth, my lord. I'm a christian, born-again like you. We go to the same church. (audience laughs)
Ssebutinde: We see collusion between you and ICB and when we go down, it is collusion between you and your brother.
Katto: No, my lord, we clashed many times with my brother in banking terms....I don't even think he could have colluded with Mr Smith either.
Owor: The Amex guarantee for US$6.45m pledges to pay withing 10 days of recipient of advance of US$6.45m...Have you ever seen the guarantee?
Katto: I have never seen such a guarantee, though the managing director (Patrick Katto) of the bank (ICB) informed me.
Ssebutinde: You were not shown a copy?
Katto: No, as far as I'm concerned, it was bank to bank.
Ssebutinde: I find it hard to believe that. There is no bank in the country let alone the world that can give you a guarantee and not give you a copy, let alone one for US$6.45m. You cannot convince us.
Katto: I didn't see a copy, but I was made aware of it and was comfortable.
Ssebutinde: Then, sir, you are very negligent. If it is true, you are the most negligent director.
Katto: I trusted the bank.
Ssebutinde: If you were an honest person dealing with others and they have given you that much money, you would be worried about your contract and...
Katto: (insists he trusted ICB.)
Owor: Why was it (Amex guarantee) addressed to Bank of Uganda?
Katto: ICB should answer that.
Ssebutinde: And they told us that it was on your instructions.
Owor: (asks Katto whether the goods that were being guaranteed were for domestic or commercial use as demanded by Amex or not)
Katto: They were for domestic use in Uganda.
Owor: We got different testimony. These were things like military helicopters, arms and...
Katto: Defence said that they were to be used in Uganda. (He is questioned several times and he insisted they were for domestic use in Uganda)
Owor: Was the Amex condition of depositing US$6.4m met?
Katto: I believe ICB had sufficient funds on its account with Amex. I know the promissory notes were sent there. I didn't believe Amex would have issued the guarantee without...
Ssebutinde: The question is simple. Were you interested in operationalising the guarantee?
Ssebutinde: So the key is the US$6.45m. Did you operationalise it?
Ssebutinde: Do you have a written proof?
Katto: No. But to my knowledge, it was operationalised.
Ssebutinde: So what knowledge would that be?
Katto: BOU wouldn't have authorised ICB.
Ssebutinde: Unless there was misrepresentation. Who was supposed to operationalise it?
Ssebutinde: With what funds?
Katto: The PNs.
Ssebutinde: which you had taken out in form of overdraft?
Katto: (after a long grilling, Katto conceded that the Amex bond was useless)
Owor: Why didn't the PNs secure the Amex guarantee?
Katto: They went to pay for the helicopters.
Ssebutinde: We want to know why?
Katto: The bank (ICB) should have kept the PNs.
Ssebutinde: Not on your instruction?
Katto: We requested the bank to pay for the helicopters and we were comfortable. There was also too much pressure.
Ssebutinde: And the pressure was meant to undermine the security of the buyer?
Ssebutinde: Who paid for...
Katto: The bank paid.
Katto: We didn't have funds.
Ssebutinde: Didn't you have money on your account?
Katto: We had no money.
Ssebutinde: Isn't that US$6.45m... the reason that ICB went down.
Katto: No. I don't think so, my lord.
Ssebutinde: (points to Kiryabwire) My colleague here, who has more knowledge on it, tells me that it was one of the reasons ICB went down.
Katto: (denies it)
Hearing continues today.
Katto's Witness From The Company Registry Vanishes