After the fall, come the questions.
In what we predict to be a fundamental and precedent suit in the history of financial transactions, fraud and money laundering, Crane Bank Uganda (under receivership, and now defunct) and all her affiliates and associates will be under scrutiny for a while.
On 20th October, 2016, Bank of Uganda took over Crane Bank after the latter’s capital reduced greatly below the required statutory minimum of 50%. The main reason the central bank claims is because the defunct bank had several non-performing loans (NPLs) which jeopardized the financial interests of its customers/depositors.
Under its regulatory and monitoring role, the central bank has authority to monitor financial transactions, regardless of the amount but most especially above USD5000 whose source and destination must be verified. The amount this case is handling is in billion shillings, involves deposits and securities on loans and therefore crucial to the economy.
Bank of Uganda (the Receiver) claims the former owner of Crane Bank, tycoon Sudhir Ruparelia fraudulently withdrew USD92.8 million (approx.UShs.334b) and more UShs.8.2b from accounts of depositors of the bank for personal gain. His associates, whom the suit documents mention are cited in the scam: accused of falsifying invoices to bill the bank for activities it did not carry out. They are accused of fostering the fraud after findings of an alleged concealment of ownership and control of the bank.
Two lessons from this incident:
- Lesson for financial institutions
Section 31 of the Amended Financial Institutions Act suggests that section 88 of the Principal Act be amended by substituting for subsection (2) (e) the following;
‘( e ) any lending or other credit accommodation to any officer, director or any related person of an officer or director on preferential terms or without adequate security made within six months prior to the takeover by the Central Bank of the management of the financial institution shall be rescinded: and that officer, director or related person to the officer or director shall immediately refund the moneys advanced and the interest or other economic return accrued at the going rate in the bank.’
This is the biggest lesson. Insider lending, bad debts and non-performing loans regardless of the security a financial institution has may still trigger its reserves to drop below the required minimum and cause suspicions of fraudulent transactions.
This particular section warns the directors and any officers having authority to run financial institutions to restrain themselves from binge borrowing since they will be liable for consequential loss and bad debts.
- Defaulting on remitting workers’ compensation
As an employee, this should worry you. If your employer does not remit social security ‘worker’s contributions’ to the national fund, he/she/it limits your peaceful retirement. Crane Bank (defunct) is accused of failing to remit about UShs52b to the National Social Security Fund in workers’ contribution. This amount, broken down, shows that UShs.12.7b are arrears and the interest accrued thereon to members; and a statutory penalty for defaulting on the payment being UShs.39.3b.
Whether or not the tycoon settles outside of court is a personal decision he will have to make. Either way, the case has been instituted and he has to respond by way of filing a defence. Should he decide to settle this outside court, he will have saved himself more turmoil and will ably retain several of his assets as well as claim his seat in the arena of tycoons.
BY ATUHAIRWE AGRACE
This article appears in our digital law newsletter, The Deuteronomy Vol 7, Issue 2 of July 14th, 2017
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