By Mike Ssegawa

Following the Auditor General’s special audit report on seven defunct banks released to Parliament mid this week, Bank of Uganda bosses, and people or organization who have been benefitting from the processes of closure and transfer of assets are in serious trouble. What is more serious is how institutions mandated to oversee the processes looked away, which point to possible fraud or corruption in the bonanza

Last November on 28th, Parliament’s COSASE committee asked the Auditor General to carry out a special audit in respect to the closure of commercial banks by Bank of Uganda spanning a period of over 10 years.

AG John F.S Muwanga completed his job and reported back to parliament findings which has made managers of Bank of Uganda and DFCU bank uneasy.

The spotlight of the report goes on what went wrong in the acquisition of Crane Bank by DFCU Bank, among other banks, which is likely to arm businessman Sudhir Ruparelia and Crane Bank shareholders who have court battles running.

The auditor general’s report therefore, has hit BOU and DFCU like a rocket, as they hoped to run away with the Crane Bank loot, including assets worth billions of shillings, without any interruption.

The AG found out that the Central Bank didn’t follow guidelines, regulations, policy in selecting buyers for defunct banks or the assets of those defunct banks. The assertion means the move provided opportunity for fraud or connivance in the sale process between BoU officers and buyers.

“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”, noted the AG.

Mr Muwanga says this was the case the closure and disposal of Teefe which was closed over insolvency in 1993, International Credit Bank Limited (1998), Greenland Bank (1999), The Cooperative Bank (1999), National Bank of Commerce (2012), Global Trust Bank (2014) and finally Crane Bank Limited (2016).

“BOU did not carry out the requisite valuation of assets of liabilities…in absence of 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.” Muwanga said in his report.

Section 95(3)(a) and (b) of the Financial Intelligence Authority makes valuation a mandatory requirement and also requires documentation of rationale for sale at given price.

However, the AG discovered that BOU was giving away banks and their assets at any price and at any terms it wants, which was against the law as it opens the process to corruption and fraud.

The auditor general was dismayed that BOU could not account for liquidation costs of the defunct banks contrary to FIA.

Crane Bank closure

The AG report comes at the time the closure and sale of Crane Bank to DFCU is still fresh in the heads of Uganda and the banking world.

However, one can say, the Auditor General is likely to turn into a witness of businessman Sudhir Ruparelia whose battles with Bank of Uganda and DFCU are before courts.

Like in earlier closures, BoU thought it would run through the winding down of Crane Bank. It was unfortunate though as games to pressurize Mr Ruparelia and Crane Bank shareholders to lose more money and assets backfired on the orchestrators as it emboldened the businessman. He demanded his assets back, and declined to accept the payout he had earlier conceded to.

The auditor general is now vindicating crane bank owners, saying, the central bank didn’t follow procedures, regulations, procedures or processes in selecting the Bank’s buyer, and its assets.

It now places people involved in the closure and sale to DFCU in the spotlight as accusations of possible fraud, collusion could not be ruled out.

For the AG says, he could not establish how DFCU was were picked as a buyer and how terms of the P&A agreement were determined. It appears like DFCU was picked because BOU wanted to sell to DFCU!

AG notes, “There were 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 purchasers.”

Muwanga adds, “I was not provided the minute leading to the P&A agreement. In the absence of the guidelines and negotiation minutes, I could not determine how BOU selected the best evaluated bidder and how terms in the P&A were determined.”

It means the process of transferring Crane Bank to DFCU was opaque and was therefore done in a non-transparent manner, as regulations say.

So what was supposed to be done?

In Section 95 (2)a/b, BOU is required by FIA to undertake a valuation of assets, document the process of valuation and discounting and applicable assumptions, and to sell assets in a manner that results in highest value for assets and to minimize loss to CBL, Creditors and shareholders.

The audit however says there was no valuation of assets and liabilities of Crane Bank. So the central bank did not do its required by the FIA and therefore could have caused financial loss to the tax payer, CBL’s creditors and shareholders.

Thus, the buyer, who is DFCU, won a lottery jackpot without valuation.

“BOU did not carry out a valuation of assets and liabilities of CBL,” the AG confirmed the reports which had earlier flown around that BOU bosses were conflicted in the sale to DFCU.

That was not all. The AG went ahead to establish that the purported value of Crane bank was set by the buyer.

Muwanga says he met with the outgoing executive director supervision Ms Justine Bagyenda who confirmed that it was DFCU who did the CBL inventory report.

It is at this point Ms Bagyenda, a member of the FIA board, lost it. Questions on why she relied on DFCU valuation will linger over her head for a long time.

To make matters worse, BOU did have details of loans DFCU and their values, begging questions on what was the basis for transferring or selling Crane Bank to DFCU.

The people who managed Crane Bank closure and transfer to DFCU, have serious questions to answer.