In November last year, when the parliamentary committee on Commissions, Statutory Authorities and State Enterprises (Cosase) opened an investigation into the defunct banks, it needed credible information, naming names and apportioning responsibility for specific acts of a fraudulent or questionable nature.
Without this insight, any parliamentary probe would find itself constrained. A year later, Bugweri county MP, Abdu Katuntu, who chairs Cosase, told The Observer that parliament is now in a firm position with the investigations and Ugandans will have value for the resources spent on the inquiry.
“It will be prejudicial to the ongoing process if I share my thoughts about the likely outcome of this process, but the information that has been discovered is so far good and worth it,” he said.
Based on Cosase’s working document seen by this newspaper, the committee’s outstanding task will be to apportion blame for the commissions and omissions raised by the auditor general (AG) as well as tracing of the assets of the defunct banks.
“We have some information of who benefited from the scheme but we wait to hear from the side of those accused,” said one of the MPs who sits on Cosase, speaking off the record.
This MP explained that it is against this background that parliament instructed the AG and inspector general of government (IGG) to investigate the wealth of the top leadership at BoU.
“This can give you clues as to where we are heading,” the MP said.
On November, 28, 2017, Katuntu requested the auditor general to undertake a special audit on the closure of commercial banks by Bank of Uganda (BoU).
Aware that there are several investigations that have previously been carried out on closed banks like Greenland Bank Limited, Katuntu’s committee specifically asked the auditor General to shed light on “the status of the banks at closure, cost of liquidation, status of assets and liabilities of the aforementioned banks from closure to-date, non-performing assets, non-recoverable assets and liquidators.”
Under the Financial Institutions Act (FIA) as amended, BoU can revoke the licence of a financial institution if it is satisfied that it has ceased to carry on business, become insolvent, gone into liquidation, wound up, undercapitalised or dissolved.
Section 95 of the FIA provides that BoU shall, within a year after taking over a financial institution, consider and implement any of the following options: arrange a merger with another financial institution; arrange for the purchase of assets and assumption of all or some of the liabilities by other financial institutions; arrange to sell the financial institution; liquidate the assets of the financial institution.
The parliamentary investigation seeks to establish whether the central bank exercised these powers in accordance with the law.
“In specific terms, this investigation is intended to establish the status of the assets and liabilities at the time of takeover and to-date as well as find out whether they have acted in good faith and with due care as receivers and liquidators in the exercise of their general powers,” Katuntu said.
Accordingly, the auditor general opened inquiries into how Teefe bank, International Credit Bank Limited, Greenland bank, Cooperative bank, National Bank of Commerce, Global Trust bank and Crane bank came to be shut down.
ATTEMPT TO BLOCK INVESTIGATIONS
Some individuals attempted to block the parliamentary investigations on ground that it was sub judice. Shareholders of Crane bank and National Bank of Commerce are battling BoU in the High court over the closure of their respective banks.
Indeed, deputy speaker of parliament Jacob Oulanyah had stopped Cosase on this very ground. However, Katuntu approached Speaker Rebecca Kadaga who intervened to save the parliamentary investigations. Kadaga indicated that the inquiry did not materially touch the issues in the court.
At the same time, the Financial Intelligence Authority and the Inspectorate of Government were carrying out a parallel inquiry into suspected illicit financial transactions said to involve former BoU director for supervision, Justine Bagyenda.
The FIA executive director, Sydney Asubo, told The Observer that his mandate is not to investigate, but source information.
“It is within that context that we formed ground to justify further investigations into the illicit finance flows,” Asubo said.
When asked whether this is good ground to question central bank mandarins, Asubo said: “I would not advise further investigations if the information sourced is flimsy. Whereas I cannot discuss what our report says, I can confirm that we formed the ground to justify investigations.”
We understand that the FIA report, which was shared with the speaker to parliament, IGG and minister of Finance, Planning and Economic Development, was the basis upon which Kadaga, weeks ago, called off the process of approving Bagyenda’s nomination as a new member on the FIA board.
Meanwhile, in the background, IGG’s own probe found itself almost getting muddled by a behind-the-scenes power play which threatened to further undermine the integrity of the central bank.
The bank governor, Emmanuel Tumusiime Mutebile, was the subject of wide-ranging whistle-blower allegations from individual employees of BoU who claimed their rights and freedoms were being violated.
The IGG was, therefore, asked to inquire into the very competence of the bank’s top management. Matters came to a head with the appointment of one Twinemanzi Tumubweine to replace Bagyenda, as executive director supervision. This appointment was derided as having been premised on conflict of interest, nepotism and influence peddling.
Tumubweine is son to Manzi Tumubweine, who has been a member of BoU’s board of directors. The petition also said Twinemanzi was unqualified for the job. Very quickly, a war of words broke out between the Inspectorate of Government and the governor with the latter arguing that the constitutional guarantees of independence outlined in respect to BoU insulated him from investigations by the IGG.
The impasse saw an exchange of several legal opinions and letters between the two constitutional bodies, ultimately prompting the intervention of President Museveni.
Museveni called a meeting at State House-Entebbe attended by the governor; his deputy, Dr Louis Kasekende, the IGG, and Katuntu in his capacity as chairperson of Cosase, which exercises parliamentary oversight over both institutions.
At the conclusion of the meeting, the president set up a harmonised committee chaired by Katuntu to quietly investigate the issues and power politics at BoU.
This ad hoc committee is yet to report to the president. However, along the way, the AG released a preliminary report on the defunct banks.
AUDITOR GENERAL’S FINDINGS
The report from his special audit of Bank of Uganda and defunct banks was released last month. Auditor General John Muwanga revealed that there were no documented guidelines/regulations or policies in place for the identification of the purchasers of Gold Trust Bank, National Bank of Commerce and Crane Bank Limited.
“There were also no guidelines to determine the procedures to be adopted by the central bank in the sale/transfer of assets and liabilities of the defunct banks to the identified purchaser. In the absence of guidelines, I could not establish the basis used to select the purchaser and determining the values of assets and liabilities transferred by BoU to the purchaser,” the AG’s report notes.
The AG further noted that BoU did not carry out a requisite valuation of assets and liabilities of the three defunct banks whose fate was resolved under the ‘purchase and assumption’ arrangement.
“In absence of the valuation and or documented evaluation of alternatives and assumptions used, I could not establish how the terms for the transfer of assets and liabilities in the P&A were determined.”
Whereas the AG was availed with the asset movement schedules for Greenland Bank, ICB and Cooperative bank indicating details of assets at closure, assets sold, selling price, period sale, unsold assets, performing and non-performing loans from time of closure to the year 2001, for the period starting 2002 when the liquidation role was directly performed by BoU, no asset movement schedules were availed.
To that effect, the AG notes, “I could not adequately verify the movement of assets of the three banks from Shs 117.6 billion at closure to Shs 19.7bn as at 30th June 2016.”
In the case of ICB, Greenland bank and Cooperative bank, the total loan portfolio sold of Shs135bn included secured loans of Shs34.5bn sold to Nile River Acquisition Company at a 93% discount.
The AG also discovered that the Crane Bank non-performing loans worth Shs 570.38bn out of the gross loans of Shs 1,159bn, were sold to dfcu Bank at what appears to be heavily discounted cost of Shs200bn.
“I could not establish how the consideration of Shs 200bn was derived from the bad book of Shs 570.38bn…Further, I was not provided with the schedule of loans and the corresponding collateral transferred to dfcu.”
On Friday, Cosase is expected to again meet with BoU officials to clarify on the issues raised in the AG’s report.